Dairy Crest Annual Report 2015

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Dairy Crest Group plc

Claygate House

Littleworth Road

Esher

Surrey KT10 9PN

Company No: 3162897

Visit our website at

www.dairycrest.co.uk

http://www.dairycrest.co.uk/investors/

Dairy Crest Group plc Annual Report 2015

This report is printed on Chorus Lux Silk paper.

This paper has been independently certified as meeting

the standards of the Forest Stewardship Council® (FSC)

and was manufactured at a mill that is certified to the

ISO14001 and EMAS environmental standards.

The inks used are all vegetable based.

Printed at Pureprint.

Designed and produced by Tor Pettersen & Partners.

Photographic direction by Hudson Wright Associates.

Board photography by Ed Hill.

Dairy Crest Annual Report 2015 1

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2 At a glance

Strategic report

4 Our business model

6 Our strategy

8 Our people

10 Chairman’s statement

11 Chief Executive’s review

14 Principal risks and uncertainties

16 Performance

16 – Cheese & whey

18 – Spreads & butters

20 – Dairies

22 – Milk Procurement

23 – Corporate Responsibility

28 – Financial review

Governance

32 Board of Directors and Advisers

34 Management team

35 Corporate governance

45 Directors’ remuneration report

63 Directors’ report

66 Statement of Directors’

responsibilities

The numbers

67 Independent auditor’s report

71 Consolidated income statement

72 Consolidated statement

of comprehensive income

73 Consolidated and Parent

Company balance sheets

74 Consolidated statement

of changes in equity

75 Parent Company statement

of changes in equity

76 Consolidated and Parent

Company statement of cash flows

77 Accounting policies

83 Notes to the financial statements

121 Group financial history

122 Shareholders’ information

Dairy Crest processes and markets branded dairy

products and nutritious fresh milk. The Company

has a well-established strategy, a clear vision,

robust values and good people.

In the year ended 31 March 2015 Dairy Crest has grown the combined sales and profits of our predominantly branded Cheese and whey and Spreads and butter businesses.

We have also negotiated the sale of our Dairies operations. Reported sales and profits from these operations have both fallen in the year.

The sale, which will transform Dairy Crest and allow us to focus further on profitable growth, is subject to the approval of the competition authorities.

We constantly innovate, bringing new products to market and new ways of working across the business.

We are a responsible business and have been awarded five stars by Business in the Community up from four and a half stars last year, maintaining our place at the very top of their index.

At the end of a year of change, Dairy Crest is well positioned to deliver sustainable and profitable growth for the benefit of everyone connected to the business.

CONTENTS

1

Notice: Limitations on Director liability –

The purpose of the Annual Report is to provide

information to members of the Company and it

has been prepared for, and only for, the members

of the Company, as a body. The Company its

Directors, employees, agents and advisors do

not accept or assume responsibility to any other

person to whom this document is shown or

into whose hands it may come and any such

responsibility is expressly disclaimed. Under the

Companies Act 2006, a safe harbour limits the

liability of Directors in respect of statements in

and omissions from the Report of the Directors

contained on pages 4 to 33 and 35 to 44. Under

English law the Directors would be liable to

the Company (but not to any third party) if the

Report of the Directors contained errors as a

result of recklessness or knowing misstatement

or dishonest concealment of a material fact, but

would not otherwise be liable. The Report of the

Directors has been drawn up and presented in

accordance with and in reliance upon English

company law. Liabilities of the Directors in

connection with that report shall be subject to the

limitations and restrictions provided by such law.

Cautionary statement regarding forward

looking statements – The Group’s reports

including this Annual Report and Accounts and

written information released or oral statements

made to the public in future, by or on behalf

of the Company and the Group, may contain

forward-looking statements. By their nature,

these statements involve uncertainty since future

events and circumstances can cause results

to differ materially from those anticipated. The

forward-looking statements reflect knowledge

and information available at the time of their

preparation and, except to the extent required by

applicable regulations or by law, the Company

and the Group undertake no obligation to update

these forward-looking statements. Nothing in this

Annual Report and Accounts should be construed

as a profit forecast.

Non-GAAP measures of financial performance

used throughout this Annual Report and

Accounts are defined in the Financial review

on pages 28 to 31 and in Note 1 to the

financial statements.

2 Dairy Crest Annual Report 2015

Who we are

Dairy Crest processes and markets branded dairy products and nutritious fresh milk

Cheese & whey

66% 3%

Dairies revenue Dairies profit

48%21%

Cheese revenue

Contribution to Group: % of total Group. Revenue excludes other revenue. Profit is product group profit excluding associates.

Cheese profit Spreads revenue

13% 49%

Spreads profit

Dairy Crest has the leading cheese brand

in the UK, Cathedral City, and a world-

class cheese supply chain. Cathedral City

is made at our Davidstow creamery in

Cornwall from milk supplied by local dairy

farmers. The cheese is matured, cut and

wrapped at our purpose-built facility in

Nuneaton from where it is despatched to

retailers.

We also have a smaller cheese

packing facility at Frome, Somerset which

provides the business with additional

flexibility. We currently dry the whey that

is produced as a by-product of cheese

making at Davidstow.

We are developing a new facility that

will manufacture demineralised whey

powder and galacto-oligosaccharide, a

lactose based prebiotic.

AT A GLANCE

Vision

To generate growth by building strong positions in

branded and added value markets

To simplify, make sustainable and reduce costs

To generate cash and reduce risk

To make acquisitions where they will generate value

Strategy

We are proud of our links to the countryside, our dairy

heritage and the part they play in everyday life

We want to earn the right to consumers’ loyalty by

providing healthy, enjoyable, convenient products

We aim to meet consumers’ needs and go where this

takes us

As we grow, we will look after our people and the

communities where we work

Highlights

Cathedral City continues to grow market

share and is now Britain’s 16th largest

grocery brand (Source: The Grocer)

Cathedral City now accounts for over

50% of total retail branded cheddar sales

Our premium brand Davidstow has also

grown market share

On track to produce demineralised whey

and galacto-oligosaccharide later in 2015

Highlights

FRijj sales up by 7%

Reduced sugar FRijj variant introduced

Ongoing cost reductions achieved

Property profits £17.6 million

Highlights

Country Life Spreadable continues to

grow and outperform the market

Clover maintains market share – awarded

‘Best Buy’ in spreads category by Which

magazine

Frylight sales growing strongly

Packet butter and spreads manufacturing

consolidated into one site

Dairy Crest produces some of the UK’s

leading spreads and butter brands. We

focus on two key brands Clover and

Country Life.

We also manufacture and sell Frylight

one calorie cooking spray.

During the year we have consolidated

the production of spreads and packet

butters at Kirkby, Merseyside.

We process and deliver fresh conventional,

organic and flavoured milk to major

retailers, ‘middle ground’ customers

including smaller retailers, coffee shops

and hospitals, and residential customers.

We also manufacture and sell FRijj, the

leading fresh flavoured milk brand, cream

and milk powders.

Dairies also benefit from property profits

arising from the sale of surplus depots.

On 6 November 2014 Dairy Crest

agreed to sell its Dairies operations

to Muller UK and Ireland Group

LLP for £80 million in cash on

completion. The sale has been

approved by shareholders

but remains conditional on

the approval of the relevant

competition authorities.

Details of the sale are included

in the Financial review on page 29.

Sale of Dairies

Spreads & butters Dairies

Product groups


Spreads & butters

Cheese & whey

Chard2

Severnside1 Chadwell Heath1

Hanworth1,3

Foston1

Nuneaton

Frome

Davidstow

Kirkby

Erith

1. Site included in the proposed sale of Dairies operations.2. Planning to close 2015.3. Planning to close 2016.

11 12 13 14 15

Adjusted profitbefore tax* (£m)

Revenue (£m)

311.

6

336.

4

59.7

142.

2 198.

7

Net debt(£m)

11 12 13 14 15

1,50

2.2

1,51

4.7

1,38

1.6

1,39

1.0

1,32

9.8

11 12 13 14 15

52.9

47.5 49.7

65.3

60.6

*Before exceptionals, amortisation of acquired intangibles and pension interest

Financial highlightsour retail markets

Country Life milkFresh milk to retailers

no1 ready to drink flavoured milk

Residential delivery – ‘milk&more’

no1 UK dairy spread

Frylight 1Cal

no1 UK branded cheese

Dairies

Production sites

IRI market data, 52 weeks ended 28 March 2015

£ million

Cheese 2,453

Butter and spreads 1,161

Milk 2,764

Ready to drink flavoured milk 268


Packaged milkDairies and Spreads

Cheese

Cream

Raw milk

OUR BUSINESS MODEL

Dairy Crest processes and markets branded dairy

products and nutritious fresh milk. Our business

depends on milk and we make sure we use every

drop we buy. This diagram shows how milk flows

through our business and the products we make

from it.

We have three product groups: Cheese & whey,

Spreads & butters and Dairies.

A sustainable supply of high quality milk is important to Dairy Crest. We buy 1.9 billion litres each year – around 1 litre in every 6 produced in Great Britain.

After the conditional sale of our Dairies operations we expect our annual milk purchasing volumes to fall to around 500 million litres.

We process over 400 million litres of milk into cheese each year; which is all sourced directly from dairy farmers in Devon and Cornwall and turned into cheddar cheese at our creamery in Davidstow.

Currently we dry the whey that is produced as a by-product of making cheese and sell it to food manufacturers. In future we plan to make demineralised whey powder – a key ingredient in infant formula.

Our Spreads & butters operation makes packet butter and dairy spreads from cream separated from the milk processed by our Dairies operations and vegetable oil.

After the conditional sale of our Dairies operations we will make packet butter from purchased bulk butter.

Making the most from milk

Cheese & wheyMilk procurement Spreads & butters


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Cream for manufacturing

Potted cream

Bulk butter

Buttermilk

Dairy spreads

Skimmed milk powder

Middle ground

Residential

Retail

Whey

Cheese

Spreads & butters

Dairies

Cheese & whey

Butter

Packet butter

Our Dairies operations process around 1.4 billion litres of milk each year. Most is sourced direct from dairy farmers across the southern half of England and Wales. Milk production is seasonal with more being produced in the spring, but because our consumers want to drink the same amount every day, we turn any surplus milk we have into skimmed milk powder and butter. Over 90% of the milk purchased for our Dairies

operations is sold in liquid form, through UK retailers, ‘middle ground’ customers ranging from coffee shops to hospitals, and direct to consumers’ doorsteps by our milkmen.

Today’s consumers prefer to drink lower fat varieties of milk so we separate the cream and sell it or churn it into butter.

Our Dairies operations also produce potted cream.

Dairies


OUR STRATEGY

Our visionDairy Crest has a clear

strategy. We have also

created a strong vision

and robust values for the

business which underpin

all we do.

We constantly innovate, bringing new products to market and new ways of working across the business.

We aim to generate cash and reward shareholders with a progressive dividend.

Our key performance indicators are summarised opposite. These KPIs are also used as measures for our Long Term Alignment Plan (LTAP) for Directors and senior employees. (See pages 59 to 60 for more detail).

We are proud of our links to the countryside, our dairy heritage and the part they play in everyday life

We want to earn consumers’ loyalty by providing healthy, enjoyable, convenient products

Our values

WE LISTENConsumers are at the heart of

our business

WE CREATEWe constantly look for new and

better ways of doing things

Operational performance – pages 16 to 22

Financial performance – page 28

Corporate responsibility performance –

page 23

See how we make ‘The most from milk’

through our integrated business model –

pages 4 and 5

Further details of our LTAP – pages 54

and 55

Our strategy Progress 2014/15

1 To generate

growth by building

strong positions in

branded and added

value markets

Cathedral City had another good year, growing sales ahead of the

retail cheese market. It has grown to be Britain’s 16th largest grocery

brand (Source: The Grocer, 21 March 2015), up from 18th in March

2014.

Both Country Life (butter) and Clover (spread) saw their sales value

fall in a declining butter and spreads market although sales of

Country Life Spreadable grew in the year.

FRijj sales grew by 7%.

Frylight one calorie cooking spray continued to grow sales and

market share. The brand has responded well to the increased

investment behind it and has the potential to grow further.

During the year we have carried out a comprehensive category

strategy project ‘Dairy for Life’ which forms the foundation for future

innovation, marketing and category merchandising for our key brands.

We are investing £65 million at our Davidstow creamery to

manufacture demineralised whey and galacto-oligosaccharide

(‘GOS’) and expect commercial production of these products to start

later in 2015.

Following the closure of our Crudgington site, we are building a new

£4 million innovation centre at Harper Adams University in Shropshire,

where our innovation team is now based.

2 To simplify, make

sustainable and

reduce costs

Cost reduction remains a key part of our strategy and we have again

achieved our target of making cost savings in excess of £20 million in

the year.

Prior to the announcement of the conditional sale of our Dairies

operations we announced our plans to close our specialised cream

potting facility at Chard, Somerset in 2015 and our glass bottling dairy

at Hanworth, West London in 2016. Both these projects are on track.

3 To generate cash

and reduce risk

We have agreed to sell our Dairies operations. The conditional sale

is a positive development for Dairy Crest and the wider UK dairy

sector. Shareholders have approved the sale and the process to

obtain regulatory approval is on track. Completion of the sale will

result in Dairy Crest operating from five well invested manufacturing

sites. It will be a much simpler, more focused, predominantly

branded business.

We continue to reduce risk in our closed defined-benefit pension

scheme. During the year we have reduced the scheme’s exposure to

equities and other higher-risk asset classes.

4 To make

acquisitions where

they will generate

value

Our focus in the year ended 31 March 2015 has been on organic

growth, typified by our investment in demineralised whey and GOS.

We have not made any acquisitions during the year ended 31

March 2015.


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We aim to meet consumers’ needs and go where this takes us

As we grow, we look after our people and the communities where we work

WE LEAD We value success and

strive to be the best

WE RESPECTWe value our people and are

stronger together

WE CAREWe act responsibly with a passion

to do the right thing

Future priorities Key performance indicators and performance in the year ended 31 March 2015

Our focus will remain on our key brands, Cathedral

City, Country Life, Clover, FRijj and, from 2015/16,

Frylight.

We will continue to invest in marketing these brands

– including advertising, promotions and innovative

range extensions.

We will work with key customers to build on Dairy for

Life and grow the categories in which we operate.

Working with Fonterra, our selected sales agent,

we will aim to maximise the long term return from

our investment in demineralised whey and GOS at

Davidstow.

We will continue to seek cost reductions and

efficiency improvements across our business. The

sale of our Dairies operations will significantly reduce

the complexity of the business and will allow us to

streamline our future overhead structure and systems.

Our investment in whey and GOS is nearing

completion and we expect capital expenditure to fall

below depreciation.

We will continue to reduce pension scheme risk,

initially by further reducing the proportion of higher

risk/higher return assets in the scheme.

Completion of the sale of Dairies will much reduce our

exposure to commodity risk. We will continue to work

with commodity suppliers and customers to share risk

as appropriate.

We have the opportunity to make acquisitions that will

contribute to growth and strengthen the business.

Any acquisitions we do make will have to meet strict

criteria.

Deliver progressive dividends with cover between 1.5 and 2.5 times.

In the year ended 31 March 2015 the Board is recommending a

total dividend up 1.9%. This is covered 1.8 times.

Grow earnings before interest, tax and depreciation (adjusted EBITDA*) and

adjusted profit before tax (adjusted PBT*).

In the year ended 31 March 2015 adjusted EBITDA* fell by 7% and

adjusted PBT* also fell by 7%. However adjusted EBITDA* and

adjusted PBT* for the combined Cheese and whey and Spreads

and butters product groups – which will be the heart of the

business after a sale of our Dairies operations – grew by 15%

and 19% respectively year on year.

Deliver an acceptable return on capital employed (ROCE).

ROCE for the year ended 31 March 2015 was 11.5%, compared to

the long term target of 12% (31 March 2014: 13.8%).

Maintain net debt/EBITDA within the range 1 – 2 times.

At 31 March 2015 net debt/EBITDA was 1.97 times (31 March

2014: 1.3 times).

Grow our four key brands ahead of the market.

In the year ended 31 March 2015 three of our four key brands

grew ahead of the market taking into account all sales channels

(31 March 2014: one key brand grew ahead of the market). In

addition Frylight has grown ahead of the market for both years.

Deliver cost savings initiatives.

Cost reduction projects initiated in the year ended 31 March

2015 have again delivered annual benefits ahead of our £20

million annual target.

Achieve revenue targets for products developed in the last 3 years.

In the year ended 31 March 2015 around 6% of our total revenue

and 7% of our key brand revenue came from such sales against

an ambitious target of 10% (31 March 2014: 4% of total revenue;

7% of key brand revenue).

Improve corporate responsibility measures.

In the year ended 31 March 2015 we achieved a score of 5 stars

from Business in the Community (31 March 2014: 4.5 stars).

* Before exceptional items, amortisation of acquired intangibles and pension interest.

There is a more detailed review of our performance against KPIs on pages 59 and 60.


OUR PEOPLE

Retaining a talented workforce

Striving for a more engaged workforce

To make sure we retain and develop our

talent, we use our annual appraisal system

to identify employees with high career

development potential and invite them

to join our talent programme. In 2014 39

took up the offer of participating in the

programme which includes mentoring by

senior staff, psychometric assessment and

career workshops.

By way of emphasising our

commitment to retaining talent and staff,

this year we introduced several new

corporate responsibility pledges with

the aim of increasing focus on this key

area. New pledges include increasing

the percentage of staff who have over

five years’ experience, and increasing the

percentage of roles filled internally.

Taken as a whole we believe the

investment we have made in recruiting,

retaining and rewarding our staff has

helped us maintain a turnover rate of

around 13%, an absence rate of less than

3% and ensured that over a quarter of our

employees have chosen to participate in

our sharesave scheme.

Our dedicated learning and development

team works across the business to ensure

that the right development opportunities are

available to the whole workforce from line

operators and factory team leaders through

to finance managers and senior directors.

In the dairy sector, as in the UK food

industry as a whole, there is a shortage

of food scientists and engineers. To help

tackle this problem and to ensure that Dairy

Crest is operationally fit for the future, we

have continued to invest in our technology

and engineering apprenticeship schemes

which were launched in 2011 and 2012

respectively.

At our new Innovation Centre at Harper

Adams University in Shropshire we support

undergraduate students studying a food

science related subject. The food science

placement gives them the opportunity of

getting hands on experience working on

product and packaging innovation and is in

addition to our sponsorship of places at the

Reading and Nottingham Universities ‘sixth

form summer schools’.

Joining any big business can be

daunting; to ensure new recruits get off

to the best possible start and receive a

comprehensive overview of the Company,

all new starters are invited to participate in

our group induction programme. Over the

course of this financial year 792 new starters

availed themselves of the programme.

This course ensures they understand our

business strategy, our vision and the values

to which we operate that have been the

foundation of our success.

Once on-board all staff, where

appropriate, can attend face-to-face

development courses and via our e-learning

portal can participate in online courses

ranging from health and safety through to IT

training. Since it was launched in 2010 over

3,000 people have logged onto the system,

with over 8,000 courses having been

completed.

It has, however, also been a challenging

year for many Dairy Crest staff. Over the

course of the last 12 months we have

restructured our business to ensure we

are better placed to drive growth and

create a more integrated, efficient supply

chain. Where these changes have resulted

in the reduction of roles, for example the

necessary but regrettable decision to close

our creamery at Crudgington and several

milk depots, we have supported staff with

a range of tools and services which have

helped them find alternative roles inside

and outside the Company. Indeed, this

supportive approach is now included in our

corporate responsibility pledges.

Dairy Crest is committed

to providing an inclusive

working environment

where everyone feels

valued and respected

and has the opportunity

to progress.

We recognise that

people treated and

rewarded fairly are more

loyal and are more

likely to champion fresh

ideas which help to

improve our working

practices which in turn

deliver commercial

benefit and ultimately

shareholder value.

A successful and happy workforce is

one that is involved and engaged in the

business. As well as striving to continually

improve our score in staff surveys we also

make sure that employees not only know

what is going on but that they are the first

to know what is going on. To help achieve

this we provide staff with a weekly news

round-up, monthly business performance

reports, a staff website and we run company

road shows that all employees are invited

to attend. Finally, to safeguard employees

against bullying and harassment at work and

to also ensure that bribery and corruption

are never tolerated, we have formal policies

in place and a confidential staff helpline to

provide direct support and guidance.

Since it was launched

in 2010 approximately

3,000people have logged onto

our e-learning portal

In 2014/15

618employees received a

recognition award

Investing in our staff


reward and recognition

Diversity and inclusion

Working together with Trade Unions

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Being valued and recognised at work is important. Our aim is to not only reward staff fairly for the work they do through a competitive remuneration package but to also ensure that they too share in our commercial successes. To help achieve this almost all staff are part of a bonus or incentive scheme which is linked to either personal, site and/or Company performance. To encourage a team atmosphere and to be better at rewarding success in the workplace we have a reward and recognition scheme in place whereby any member of staff can nominate another for a job well done and the best performing team in the Company is formally recognised. Despite a smaller workforce we are pleased to report that there was an increase in the number of staff successfully nominated up from 551 in 2013/14 to 618 in 2014/15. The 2014 team of the year award was presented to staff from our Frome site for the work they did to achieve top marks for a Food Standards audit from a leading retailer. To help colleagues save their money outside of work in July 2014 we launched a new, bespoke Dairy Crest benefits website which provides colleagues with access to a valuable range of discounts on products and services. By March 2015 over 1,500 members of staff had signed up to the website.

We believe that for people to be the most productive, they need to achieve an appropriate balance in their commitment to the workplace and their home life. Any employee regardless of their position, location or role should feel that they are treated flexibly in their ways of working according to business needs. We wish to have a fully diverse workforce as we recognise that people from different backgrounds, experiences and abilities bring fresh ideas and innovations that improve our business. Employees will be encouraged to reach their full potential regardless of their age, gender, marital status (including civil partnerships), disability, nationality, colour, ethnic origin, sexual orientation or religious affiliation. Dairy Crest does not tolerate discrimination or harassment on any of these grounds. To help us achieve our aims our polices include the right to apply for flexible working hours, a sabbatical, support with taking time off to study, and we provide maternity pay above the statutory minimum and full pay during paternity leave. Following the creation of a new diversity working group in 2014, which is made up of volunteers from all parts of the business and chaired by our Group Supply Chain Director, the key areas the business will be focusing on over the next 12 months will include driving diversity through recruitment and promotion, increasing the number of female managers and providing language support to workers where their first language is not English. In addition to coming top of the Business in the Community Index 2015, of which diversity is a key part, we were also pleased to be named by Waitrose as the overall winner of their prestigious ‘treating people fairly’ supplier award.

1st

1,500+have signed up to the bespoke Dairy Crest benefits website

All employeesGender profile

Senior management

Female24%

Male76%

Female17%

Male83%

As a progressive employer we recognise and respect the positive role that trade unions can play in the development of our employees and our business. Indeed both Dairy Crest and the Unions, Usdaw and Unite, agree the importance of working together towards long term employment security and wherever possible avoid redundancy though redeployment. In our true working partnerships, we strive to achieve a genuine sharing of information and openness.


CHAIRMAN’S STATEMENT

Transformational sale

In November 2014 we agreed to sell the

assets of our Dairies operations to Muller

UK & Ireland Group LLP (‘Müller’) for a

cash consideration of £80 million. The

sale has been overwhelmingly approved

by shareholders but remains conditional

on the approval of the Competition and

Markets Authority. It is pleasing that we

have received support for the sale from the

independent organisation that represents

our farmers, Dairy Crest Direct, and the

wider farming community.

Combining our Dairies business with

that of Müller will build on the progress

that Dairy Crest has already achieved,

strengthen the wider UK dairy sector and

allow Dairy Crest to focus on growing our

successful cheese and spreads operations.

The financial results for the year ended

31 March 2015, delivered in a particularly

challenging environment, highlight the

differing financial performance of the

business we are selling and those that we

will retain and which will be at the heart of

Dairy Crest in the future.

We have continued to make good

progress with projects that enhance the

future prospects of these businesses,

including consolidating butter and spreads

production onto one site and investing

in demineralised whey and galacto-

oligosaccharide – innovative products that

will expand our product range and give us

access to new sales channels in growing

global markets.

Living by our Vision and Values

Dairy Crest has robust values and a

clear vision. The Board recognises

its responsibilities to the farmers who

supply us with milk, our employees

and franchisees, our pensioners, the

communities in which we operate and

our shareholders. We use the framework

that our well established Vision and

Values provide to balance the different

interests of these groups.

Anthony Fry

Whilst I was very pleased to take up the

role of Chairman in September 2014, I did

so with mixed feelings. I was delighted

to have the opportunity to be able to

contribute further to the future of Dairy

Crest but saddened by the departure due

to illness of my predecessor, Anthony Fry,

who left the Board at that time. Anthony

had a significant influence on the business

in his seven years as a Non-executive

director and especially for the four years

he served as Chairman. I would like to

thank Anthony on behalf of the Board

for his considerable contribution to the

development of Dairy Crest and to wish

him well with his recovery.

I would also like to thank Richard

Macdonald who was Acting Chairman

while Anthony was away from the business

and has now resumed his role as Senior

Independent Director.

It is very important that the Company

has not let the tough trading environment

and the transformational activities that we

have undertaken in the year deflect us

from our commitment to act responsibly.

This has been reflected in our continuing

strong performance in the Business in

the Community Index where we have

maintained our position as their highest

ranked business in the UK and further

improved our score.

Board changes

In addition to the departure of Anthony

Fry, to which I refer above, Martyn Wilks,

Executive Managing Director, left Dairy

Crest on 31 March 2015 to pursue other

interests. Martyn was on the Board for

seven years and played a key role in

building our brands. He left Dairy Crest

with our best wishes for the future. Martyn

has not been replaced on the Board at

this time.

Increased dividend recommended

The Board is recommending a final

dividend of 15.7 pence per share, making

a full year dividend of 21.7 pence per

share, up 1.9% from last year. This

dividend is covered 1.8 times by adjusted

basic earnings per share, compared to

1.9 times last year. Looking ahead, we

propose to maintain our progressive

dividend policy with a target cover range

of 1.5 to 2.5 times.

Summary

The conditional sale of our Dairies

operations will transform Dairy Crest and

leave a predominantly branded business

that has delivered strong financial results

in the year. The business will benefit

from greater focus on sectors where it is

already strong and where it has significant

growth potential.

Stephen Alexander Chairman

20 May 2015

Total Product group profits of Cheese and Spreads businesses up 19% year on year.

Sale of Dairies operations approved by shareholders; regulatory approval progressing to plan.

Cathedral City brand continues to grow strongly – now Britain’s 16th largest grocery brand, accounting for over 50% of total branded retail cheddar sales.

On track to start production of demineralised whey powder and galacto-oligosaccharide for growing global markets this year.

Strong Corporate Responsibility commitment maintained – top ranked UK business by Business in the Community for second consecutive year.

Proposed final dividend payment of 15.7p taking full year to 21.7p, up 1.9%.

Highlights


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quarter and ended the year close to

half the peak they reached as recently

as the autumn of 2013. The collapse in

these markets and high milk production

around the world and in the UK have led

to a significant reduction in the price UK

farmers have received for their milk. Our

purchase prices for milk fell by around

25% across the year, reversing the

increases we have paid in recent years.

The long-awaited abolition of European

milk production quotas took effect

from 1 April 2015. This has been widely

expected to lead to an increase in milk

production across Europe, although not

in the UK where production has been

unconstrained by quotas. It is too early

to say how the reduction in global dairy

commodity prices and the removal of

quotas will affect milk production and

imports of dairy products, particularly

cheddar cheese, into the UK, although

cheddar imports into the UK decreased

9% in the year ended 31 December 2014

(Source: DairyCo). While we monitor this

situation closely we anticipate that our

market leading Cathedral City branded

cheddar will not be affected significantly

by these changes and will continue to

perform strongly.

Against this market background we

continue to position ourselves to deliver

sustainable and profitable growth.

Transformational sale of Dairies

operations

In November 2014 we agreed to sell

the assets of our Dairies operations to

Müller for a cash consideration of £80

million. The conditional sale of our Dairies

operations will result in Dairy Crest

CHIEF EXECUTIVE’S REVIEW

Summary

This has been another year of significant

progress for Dairy Crest. We have

grown combined Cheese and Spreads

sales despite the deflationary market

environment. We have also delivered

an encouraging improvement in the

combined margins of these businesses.

Cathedral City has again outperformed

and accounts for over 50% of retail

sales of branded cheddar. Our focus on

product development has underpinned

these results and our investment in a

new innovation centre will support this.

We have again met our target to deliver

annual cost savings of over £20 million.

These include consolidating our butter and

spreads production onto one site.

We have agreed to sell our Dairies

operations. The conditional sale is a

positive development for Dairy Crest and

the wider UK dairy sector. Shareholders

have approved the sale and the process

to obtain regulatory approval is on track.

Completion of the sale will result in Dairy

Crest operating from five well-invested

manufacturing sites. It will be a much

simpler, more focused, predominantly

branded business. It will also have

exposure to the growing infant formula

category and emerging markets.

Market background

This year has been a difficult one for

the major food retailers, our principal

customers. They have faced falling sales

due to food price deflation and greater

competition.

It has also been a very difficult year

for dairy farmers. Global dairy commodity

prices have fallen steeply since the first

becoming a stronger, predominantly

branded business that can grow profitably

and generate cash.

In December 2014 Dairy Crest’s

shareholders overwhelmingly approved the

proposed sale, which remains conditional

on the approval of the competition

authorities. This process is on track. The

European Commission referred it back

to the UK for review by the Competition

and Markets Authority (‘CMA’) which

is currently expected to make a phase

one decision in June 2015. Although this

deadline may change and the review

could move to a second phase we remain

confident that a sale will ultimately be

approved and proceed.

The conditional sale of our Dairies

operations and their subsequent

combination with Müller’s dairies business

will help create a more sustainable UK

dairy sector by delivering economies

of scale and cost efficiencies that will

underpin investment and help the UK

to compete more successfully in global

markets. It is encouraging that we have

received support for the sale from the

independent organisation that represents

our farmers, Dairy Crest Direct, and the

wider farming community.

A successful outcome will benefit

farmers, consumers, customers,

employees and Dairy Crest’s shareholders.

Cathedral City outperforms

In total, sales of our four key brands,

Cathedral City, Clover, Country Life and

FRijj were unchanged over the year. As the

table on page 12 shows, both Cathedral

City and FRijj performed strongly. However

Clover and Country Life sales both fell in a

butter and spreads market that continues

to decline. Despite this we saw a welcome

increase in margins in our Spreads and

butters business.

Cathedral City again outperformed

the market and grew sales by 5%. Its

annual growth over the last five years

has averaged over 7%. Cathedral City is

now Britain’s 16th largest grocery brand

(Source: The Grocer 21 March 2015) up

from 18th last year. Cathedral City now

accounts for over 50% of total branded

retail cheddar sales. Sales of competing

cheddar brands have continued to decline.

Taken together retail sales of the next

three largest cheddar brands were down

over 20% in the year and were just half

those of Cathedral City.

The UK butter and spreads market

remains difficult. Total market sales fell by

4%. Consumption is falling as consumers

continue to turn away from making

sandwiches in the home. Butter, where

market sales are unchanged compared

to last year, continues to gain share


from spreads where sales are down 8%. Against this background Clover and Country Life butter, our two key brands in this market, have delivered a satisfactory performance. Clover performed in line with the spreads market as a whole and was awarded Which magazine’s ‘Best Buy’ in the spreads category (Source: Which February 2015). Country Life Spreadable, which accounts for nearly 60% of total Country Life butter and spreads sales outperformed the butter market and grew sales by 2%. We expect to use some of the savings we will achieve from the consolidation of our spreads and packet butter production to increase marketing expenditure in this high-margin category. FRijj performed well. In a ready to drink flavoured milk market that is still growing, but at a much slower pace than last year, FRijj sales grew by 7%. Some of this growth came from sales to the food service and convenience sectors and is therefore not reflected in the IRI market data which just covers major multiples. The FRijj brand is included in the conditional sale of our Dairies operations to Müller. We have also seen strong growth from Frylight one calorie cooking spray, which we purchased in 2011. This brand has responded well to the increased investment in marketing that we have made consistently since then and has the potential to grow further. In future we expect to report it as one of our key brands alongside Cathedral City, Clover and Country Life butter and spreads. Dairy is one of the UK’s largest food retail categories and during the year Dairy Crest carried out a comprehensive category strategy project. ‘Dairy for Life’ is a framework to make people look

differently at the dairy category. It forms the foundation for future innovation, marketing and category merchandising for our key brands. We will work with our major customers to implement the Dairy for Life findings and drive growth across the dairy category. Some ideas generated by Dairy for Life, such as cross-sector promotions and additional store positionings, have already been implemented. Innovation remains key to the success of our brands. During the year we have launched several brand extensions including Cathedral City Spreadable, Clover Lighter than Light, and reduced sugar FRijj. Since the year end we have started to produce and sell Clover cooking oil which combines Frylight spray technology and the strength of the Clover brand. In the year ended 31 March 2015 around 7% of our combined Cheese and whey and Spreads and butter revenue came from products introduced in the last 3 years. This compares to our ongoing ambitious target of 10% and last year’s performance of 4% across the business as a whole and 7% for our branded business. To further increase our focus on innovation we have entered into a new partnership with Harper Adams University. Our innovation team has moved to Harper Adams and we are building a £4 million innovation centre on the university campus. We expect this to be fully operational by the end of 2015. The partnership will give us access to food and farming research that will help us continue to develop new products and ways of working.

Building from strengthWe have continued to make good progress with projects that enhance the future prospects of our Cheese and Spreads operations, including consolidating butter and spreads production onto one site and investing in demineralised whey and galacto-oligosaccharide, a lactose based prebiotic. We are nearing completion of the project to make demineralised whey powder and GOS at our Davidstow creamery in Cornwall. These products will give us access to new sales channels in growing global markets. Both products are used in the manufacture of infant formula for which there is growing demand across the world. We expect commercial manufacture of both products to start later this year. During the year we entered into a strategic partnership with Fonterra, the world’s leading dairy exporter. Fonterra will market and sell our products on our behalf and is also providing valuable technical and engineering support.

Cost cuttingWe have again achieved our target of making cost savings in excess of £20 million in the year. The consolidation of our spreads and packet butter manufacturing into one site at Kirkby, Merseyside and the closure of Crudgington will give us a lower fixed cost base that will benefit future years. We continue to work with non-milk suppliers to drive efficiencies and lower our purchase costs. During the year we have increased our use of lighter weight polybottles; reduced packaging costs and made our distribution network more efficient. Cost reduction is essential in our residential milk delivery business, where

CHIeF exeCUTIve’S RevIeW COnTInUeD

Brand Market Dairy Crest sales growth*

Market statistics**

Brand growth Market growth

Cheese +5% +2% unchanged

Spreads -8% -8% -8%

Butter -9% -7% unchanged

Ready to drink flavoured milk +7% unchanged +4%

Total unchanged

* Dairy Crest value sales 12 months to 31 March 2015 v 12 months to 31 March 2014 ** IRI data 52 weeks to 28 March 2015


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sales fell by 11% compared to the year

ended 31 March 2014. We have continued

with our programme of depot closures.

In addition we announced that we would

further rationalise our Dairies operations

and consult with employees regarding

the closure of our glass bottling dairy in

Hanworth, West London and our specialist

cream potting facility in Chard, Somerset.

We anticipate that Chard will close later in

2015 and Hanworth in 2016.

Completion of the sale of our Dairies

operations will significantly reduce the

complexity of the business and will allow

us to streamline our future overhead

structure and systems.

Financial performance

The financial performance of the business

as a whole starkly demonstrates the

differing financial performances of

the operations we are retaining and

those we are selling. Taken together

our Cheese and whey and Spreads

and butter businesses (which we will

retain) delivered marginally higher sales

compared to the year ended 31 March

2014 and significantly higher product

group profits, up by 19% to £66.9 million.

However excluding property profits our

Dairies business (which we are selling)

recorded a product group loss of £15.8

million against a profit of £0.6 million in

the previous year. Property profits were

broadly in line with last year at £17.6 million

(2014: £18.2 million).

For the business as a whole, adjusted

group profit before tax decreased by

7% to £60.6 million (2014: £65.3 million).

Adjusted basic earnings per share

also decreased by 7% to 38.0 pence

(2014: 40.8 pence). Pre-tax exceptional

charges in the year were £36.3 million

(2014: £10.4 million). These mainly related

to the closure and future closure of

manufacturing sites. Reported profit before

tax, which reflects these exceptional

charges, amortisation of acquired

intangibles and pension interest, was

£22.1 million (2014: £54.2 million).

Group net debt at 31 March 2015

was £199 million up from £142 million at

31 March 2014, as we invested a high

level of capital expenditure in the whey

and galacto-oligosaccharide project at

Davidstow and the completion of the Kirkby

spreads and butter manufacturing facility.

Future prospects

Completion of the sale of our Dairies

operations will result in Dairy Crest

operating from five well-invested

manufacturing sites and be a much

simpler, more focused, predominantly

branded business. It will also have

exposure to the growing infant formula

category and emerging markets.

Looking ahead, Dairy Crest is well

positioned for sustainable, profitable

growth. Over the coming year as a

whole we expect results to benefit from

the continued growth of Cathedral City,

ongoing cost savings and the completion

of our project at Davidstow where we

will add value to our whey stream by

producing ingredients for infant formula.

This growth will be second half weighted.

We expect that our net debt, which

at the year end remains within our target

range, will fall once we have completed

our major investment projects. The

receipt of the proceeds from the sale of

our Dairies operations will accelerate this

reduction.

Mark Allen Chief Executive

20 May 2015


We manage risk to help us achieve our strategic objectives and protect our reputation.

The Audit Committee is responsible for overseeing the Group’s risk management processes and the Board is responsible for the appropriate identification of risks and the effective implementation of mitigating activities. Internal Audit provides independent assurance to management and the Audit Committee as to the effectiveness of mechanisms put in place to mitigate risks. This process explicitly recognises the relationship between Internal Audit and Risk Management. The Audit Committee is satisfied that the processes are adequate and appropriate. Further details are set out in the Corporate Governance Report on pages 35 to 44. The Group Risk Register is compiled in two stages. Central, demand and supply risks are identified separately by members of the Management Board and senior managers and consolidated into an initial register that is then reviewed and refined by the Management Board as a whole to create the Group Risk Register. The Board formally reviews the Group Risk Register annually when the budget is set. The Company Secretary and General Counsel is responsible for highlighting to the Board any changes to the Group Risk Register identified during the intervening periods. The principal risks and uncertainties facing the Group are set out in the table below. This is not intended to be an exhaustive analysis of all risks facing the Group.

Threats to objectives identified

Per

form

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mon

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Business objectives set or reviewed

Existin

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sess

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Threats quantified

Improvem

ents implem

ented

Risk register

Group board

Management board

Commercial risksReduced profitability

Risk area and potential impact

We operate in extremely competitive markets. If we fail to compete effectively or are subject to higher input prices that cannot be recovered by raising selling prices without losing volumes we could lose sales and profits.

Mitigating controls

We set ourselves the target of continually reducing our cost base and are able to invest in our supply chain to help achieve this.

No one customer accounts for more than 15% of total revenues and we continually strive to widen our customer base. Despite challenging trading conditions we continue to invest in marketing our key brands. Our innovation programme continues to generate new products that reinforce our appeal to customers. We recognise the importance of strong customer relationships and the executive team plays an active part in maintaining and developing these. They are also involved in major customer negotiations. We conduct customer surveys to benchmark our performance and we continuously monitor the service and quality levels provided to our customers and consumers, and have procedures in place to react quickly to any issues. Our commitment to corporate responsibility is an important part of our overall proposition to some customers.

Reduced demand from consumers


Consumers could move away from dairy products for economic, health, ethical, or other reasons leading to lower sales and profits.

Mitigating controls

Consumers are at the heart of our business and we regularly monitor consumer trends. We continue to promote the health benefits provided by dairy products and develop healthier products. We also continue to maintain our focus on developing a compelling new product development pipeline, enabling us to react to consumer trends, for example with more environmentally-friendly packaging, and healthier variants of our key brands. We have a direct involvement with government to understand and influence future legislation that could affect future consumer demand.

Input cost volatility


Volatile milk and non-milk costs (vegetable oils, diesel, electricity, gas and packaging) could reduce margins unless we can manage cost risk, find other cost efficiencies elsewhere or increase selling prices.

Milk prices could remain volatile as European milk production quotas have been abolished from April 2015.

Mitigating controls

This area is closely reviewed by the Management Board which has established a risk committee to monitor and hedge forward non-milk commodity prices as appropriate. The risks associated with purchasing large volumes of milk have been reduced by establishing milk pools linked to major customers. We seek to absorb short term cost movements through supply chain efficiencies. Our purchasing and commercial teams have clear lines of communication between them to ensure customers are kept aware of changes to our cost base and requests for price increases can be fully justified.

We have reviewed the effect that we believe the abolition of milk quotas will have on our business. We believe it is commodity cheese markets, in which we don’t operate, that are most likely to be affected, but we will continue to monitor this closely.

PRInCIPal RIsks and unCeRtaIntIes


Operational risks

Inability to source milk


Without milk we would not have a business. Restricted milk supply due to

economic factors, weather, fuel availability or an epidemic which affects

dairy cows could restrict milk supply. This in turn could lead to lower sales

and profits. Consumer confidence in dairy products could also be adversely

affected.

Mitigating controls

We invest significant resources in maintaining strong relationships with

our milk suppliers by attending forums and discussing current issues and

pressures that affect both the farms and our business. The majority of our

milk comes directly from farms on contracts that include a notice period of

between three months and one year. Our experienced milk procurement

team understand milk production and are alert to changes in supply. We aim

to pay a fair, market related milk price and closely monitor the milk price we

pay to suppliers in order to ensure we can purchase the right quantity of milk

to meet demand forecasts and have established procedures for allocating

milk between our businesses if a short-term shortfall in supply does arise. We

have contingency plans established for major incidents and work closely with

DEFRA and industry bodies to ensure these are appropriate. These plans are

regularly tested and reviewed with the Management Board.

Failure of a key supplier


We are dependent on key suppliers and could lose sales and face financial

penalties from customers if suppliers’ failure leaves us unable to supply.

Failure of key information technology suppliers could adversely affect our

financial systems.

Mitigating controls

Our purchasing team regularly monitors suppliers’ ability to supply and puts

in place alternative arrangements, including dual purchasing, if appropriate.

We have taken specific actions to reduce our dependency on information

technology suppliers.

Other operational risks


An accident, a fire, product contamination, the failure of equipment or

systems or deliberate act could disrupt production, affect food safety, cause

injury, and/or cause reputational damage with adverse consequences. We are

also reliant on information technology and exposed to losses in the event that

systems fail.

Mitigating controls

Plans are maintained to respond quickly to incidents and minimise any impact

to the Group. Our business is committed to the health and safety of all our

employees and maintains systems aimed at ensuring everyone is able to work

safely. All of our manufacturing sites have a trained engineering resource, are

supported by our major equipment suppliers and hold appropriate stocks of

spare parts. They also all have fire protection systems and regular fire drills.

Our information technology systems are regularly backed up and duplicated in

the majority of areas. We also maintain insurance cover for property damage

and business interruption risks.


Failure to maintain product quality could lead to reputational damage and loss

of sales and profits. As we start to manufacture ingredients for infant formula

this risk could increase.

Mitigating controls

We have well established supply chains and a close working relationship

with our milk suppliers. We have an independent quality team, including

experienced cheese graders. Customer and consumer complaints are

monitored and acted upon. Our contractual relationship with Fonterra, who

will sell the infant formula ingredients we will produce, allows us to utilise its

experience in this field.

People risks

Disease epidemic


A disease epidemic such as swine flu could adversely affect the health of

our employees and prevent them working, leaving us unable to service

customers.

Mitigating controls

Contingency plans which include working with industry bodies are in place

for known epidemic risks.

Recruitment and retention


We need to retain high quality employees to provide customers and

consumers with safe, high quality products and services.

Mitigating controls

We carry out rigorous selection procedures and benchmark pay and benefits

to ensure we can attract and retain the best people. We have a wide bonus

scheme and a range of other incentives to reward good performance. Our

Long Term Alignment Plan aligns the interest of management to shareholders

and helps to retain key senior employees. There is a performance review

and talent management scheme to identify and develop our own people. We

undertake regular surveys to monitor the relationship with our employees and

their engagement, communicate with them regularly and encourage them to

ask questions.

Financial risks

Pension scheme


Despite the action we have taken to reduce the risks associated with our

pension scheme, including closing the scheme to future accrual in 2010 and

buying insurance to meet the liabilities associated with many of our retired

members in 2008 and 2009, the deficit could continue to increase and we

may then have to increase our contributions.

Mitigating controls

We continue to work closely with the Trustee of the Pension Fund to improve

the Fund’s financial position at an acceptable cash cost to the business. We

have recently reduced the scheme’s exposure to equities and other higher-

risk asset classes and aim to further do so.

Legal and compliance risks


Our sector is subject to a number of complex statutory requirements. There

is a risk of fines or lawsuits and reputational damage if we fail to comply.

Mitigating controls

We have a strong in-house legal function supported by external advisers.

We have undertaken Group-wide training in respect of competition law and

actively monitor and adjust to on-going legal and regulatory changes. We

have a Business Conduct Policy, and a programme designed to ensure that

all relevant employees understand what is and is not permissible under the

UK Bribery Act.

Major project risk


To remain competitive we periodically undertake major transformational

projects following strategic reviews. Successful execution of these projects

is often key to delivering strategic objectives. At the same time we have

to ensure that major projects do not divert from the on-going day-to-day

delivery of products and services to our customers.

Mitigating controls

We have a good track record of managing projects and use experienced

and appropriately skilled senior managers to lead these. Supervisory

governance structures are also put in place to help successful delivery. We

are aware that too much change concentrated in too short a timescale can

be detrimental and manage this by ensuring key project resource is full time

with appropriate backfilling and use of third parties.

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performance

March 2016 as stock made with less expensive milk is sold. Whey realisations have also fallen and this has contributed to lower reported margins in this business. In addition we have adjusted our aged accruals in line with the Grocery Supply Code of Practice.

cathedral city continues to grow market shareTotal retail cheese market sales were unchanged over the year although volumes fell by 3%. Cheddar accounts for more than half of all retail sales. Cathedral City continued to grow market share, recording flat volumes and 5% sales growth. According to IRI, retail sales of Cathedral City exceeded £280 million. Sales of competing cheddar brands have continued to decline. Taken together the next three largest cheddar brands totalled £141 million, down over 20%. We continue to develop new products in the Cathedral City range. Products launched in earlier years such as Selections, Chedds, Spreadable Cathedral City and Baked Bites have all prospered. This year we have moved outside of cheddar for the first time and have selected Red Leicester and Double Gloucester for a new Selections variety pack. We have also extended the brand into flavoured cheeses. In addition to bringing exciting new products to the market we have continued to support Cathedral City with television and other media advertising and with an appropriate promotional programme. Dairy Crest’s second cheese brand, Davidstow, has slightly strengthened its market share. We also continue to supply Marks & Spencer and Waitrose with premium own label cheddar. During the year we have carried out a comprehensive category strategy project, ‘Dairy for Life’, which will form the foundation for future innovation, marketing and category merchandising for both of our cheese brands. On the back of this, in addition to the Cathedral City range developments referred to above, we have worked with customers to cross-promote Cathedral City and jacket potatoes and to create a video of ‘how to make a great cheese sauce’ with Cathedral City.

Growth based on top quality cheese from a highly efficient supply chainThe investment we have made in recent times in our cheese business has created a highly efficient supply chain that produces top quality products.

making ingredients for infant formula will provide additional growthWe are investing a total of £65 million at our Davidstow creamery in Cornwall to

make demineralised whey powder and galacto-oligosaccharide, a lactose based prebiotic. Both products are used in the manufacture of infant formula for which there is growing demand across the world. We expect commercial manufacture of both products to start later this year. During the year we entered into a strategic partnership with Fonterra, the world’s leading dairy exporter. Fonterra will market and sell our products on our behalf and is also providing valuable technical and engineering support.

a business with great potentialOur Cheese and whey business has well-invested facilities, and strong brands with enviable market positions. It remains well placed to generate attractive growth.

Dairy crest produces and markets cathedral city, the UK’s leading cheese brand, as well as the premium Davidstow cheddar brand. milk from around 400 farmers in cornwall and Devon is made into cheddar cheese at our Davidstow creamery in cornwall. The cheese is then matured for an average of 11 months at our purpose built nuneaton facility before being cut, packed and distributed to customers. We have two cheese packing operations: a highly automated facility at nuneaton, Warwickshire, and a plant at frome, Somerset capable of producing more complicated packs for innovative products such as cathedral city chedds and Selections. Whey is produced as a by-product of cheese making. This is currently dried and sold to food manufacturers. However we are developing a new facility at Davidstow that will manufacture demineralised whey powder and galacto-oligosaccharide, a lactose based prebiotic Reported revenue for the year ended 31 March 2015 grew by 4% to £274.4 million. However product group profits fell back by 16% to £33.1 million and margin declined to 12.1% (2014: 14.9%). As is usual in this business, falling milk prices have led to a short-term pressure on margins. The maturation process means that we sell cheese made with milk purchased around 11 months before the sale takes place. Falling sales realisations have now led to lower milk prices but there is a time lag before this is reflected in the costs of stock that is being sold. We expect this margin squeeze to reverse in the second half of the year ending 31

Source: IRI 52 weeks ended 28 March 2015

Other 89%

Share of the total retailcheese market by value

11%

Cathedral City

£ million 2014/15 2013/14

revenue 274.4 264.6product group profit* 33.1 39.3margin 12.1% 14.9%* Before exceptional items and amortisation of

acquired intangibles

cheese & whey


Str

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16thbiggest grocery brand in Britain


PeRFORMAnCe COnTInueD


Str

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£ million 2014/15 2013/14

revenue 170.0 177.4product group profit* 33.8 16.8margin 19.9% 9.5%* Before exceptional items and amortisation of


Dairy Crest

Unilever 25%

Arla 35%

Retailer own label 17%

Other 7%

Source: IRI 52 weeks ended 28 March 2015

Share of retail butter and spreads market by value

16%

We make butter at our Severnside dairy in Gloucestershire and pack butter and make spreads in Kirkby, merseyside. We have two key brands, clover (a dairy spread) and country Life (spreadable and block butter). We also produce frylight one calorie cooking spray in erith, Kent, and have several secondary brands in the spreads category. Reported revenue for the year ended 31 March 2015 fell by 4% to £170.0 million. However profits from the Spreads and butters product group increased sharply by 101% to £33.8 million, resulting in a margin of 19.9% (2014: profit £16.8 million, margin 9.5%). Lower raw material prices and reduced overheads following the consolidation of packing onto one site both contributed to the improved performance. In addition we have adjusted our aged accruals in line with the Grocery Supply Code of Practice.

market decline slows – butter in growthThe butter and spreads market continued to decline during the year. However the pace of decline fell from that recorded in the year ended 31 March 2014. Across the category as a whole, both market

volumes and values fell by 4%. Within the overall category, butter sales grew volume by 2% with unchanged values, driven by supermarket own label butter sales growth, whereas spreads volumes and values both fell by around 8%. Clover performed in line with the spreads market and Country Life Spreadable, which now accounts for nearly 60% of total Country Life sales, grew sales by 2% and outperformed the butter market. However Country Life block butter sales fell as a result of lower promotional activity. We continue to innovate and support our brands. Clover was awarded Which magazine’s ‘Best Buy’ in the spreads category (Source: Which February 2015) and Clover Lighter than Light is firmly established as a lower fat alternative. Our comprehensive category strategy project, ‘Dairy for Life’, will form the foundation for future innovation, marketing and category merchandising for both Clover and Country Life. On the back of this project we have worked with one customer to install freestanding refrigerators for butters and spreads next to their instore bakeries and with another on a ‘cupcake challenge’. Frylight one calorie cooking spray, a brand we purchased in 2011, has performed strongly with sales up 22% compared to last year. This brand has responded well to increased marketing support and has the potential to grow further. In future we expect to report it as one of our key spreads and butter brands alongside Clover and Country Life butter.

Driving efficiency, generating cashWith all our packet butter and spreads manufacturing now on one site, we expect to be able to drive efficiencies in this business and lower our manufacturing costs further. We expect to use some of the manufacturing savings to increase our marketing expenditure to grow and protect our share of this high-margin category. We would also expect to see this business improve its cash generation in future years as capital expenditure falls back to more normal levels.

Spreads & butters

101%profit increase from the Spreads and butters product group


Sale of Dairies operationsOn 6 November 2014 Dairy Crest agreed to sell its Dairies operations to Müller for £80 million in cash on completion. The sale has been approved by shareholders but remains subject to the approval of the Competition and Markets Authority.

A difficult year for the whole UK dairy sectorA global surplus of milk and high production in the UK has led to a steep fall in realisations of milk and other dairy commodities. Although we and others in the UK dairy sector have reduced the price we pay dairy farmers for their milk, the profitability of our Dairies operations has fallen significantly and excluding property profits we recorded a trading loss in the year.

Property profits remain strongAs residential and middle ground sales reduce we close and sell distribution depots. Property selling prices have remained high and profits from selling properties included in the Dairies product group were £17.6 million (2014: £18.2 million).

Growing FRijj salesFRijj is the leading brand in the ready to drink flavoured milk market. This market grew by 4% in the year ended 31 March 2015 and, buoyed by growth from sales to the food service and convenience sectors, FRijj sales increased by 7%. During the year we redesigned the packaging and introduced a reduced sugar variant.

Continued cost savingsWe have continued to reduce costs in this business. Key initiatives have been a wider use of lighter weight polybottles, distribution savings and an ongoing programme of depot closures to reflect declining residential demand. Overall residential sales fell by 11% compared to the year ended 31 March 2014. In addition we announced that we would further rationalise our Dairies operations and consult with employees regarding the closure of our glass bottling dairy in Hanworth, West London and our specialist cream potting facility in Chard, Somerset. We anticipate that Chard will close later in 2015 and Hanworth in 2016.

PeRFORMANCe CONTINUeD

Dairy Crest processes and delivers fresh conventional, organic and flavoured milk to major retailers, ‘middle ground’ customers (such as smaller retailers, coffee shops and hospitals) and residential customers. The Dairies product group includes revenues and profits from these operations. It also includes revenues and profits from one of our four key brands, FRijj, the country’s leading ready to drink flavoured milk brand as well as cream and milk powders. We operate three modern dairies at Severnside, Chadwell Heath and Foston where we pack milk into polybottles. We also have a glass bottling dairy at Hanworth and a specialist cream potting facility at Chard. In addition we have around 64 operational depots from which we deliver milk to residential and certain middle ground customers. Finally we also run an ingredients operation that helps balance seasonal milk supplies by drying surplus milk and selling skimmed milk powder. We aim to minimize throughput in this business to lessen our exposure to commodity markets. The raw milk that we purchase from farms contains more cream than the milk that we sell to customers. We use some of the surplus generated during the bottling process to make bulk butter which is transferred to our Spreads and butters business at market prices. The balance of surplus cream is sold by our ingredients operation either as bulk butter or cream. Reported revenue fell by 7% to £881.6 million (2014: £944.8 million). Both sales volumes and realisations were lower than last year. Dairies product group profits fell to £1.8 million from £18.8 million. Profits from selling surplus properties included in the Dairies product group were £17.6 million (2014: £18.2 million). In addition we have adjusted our aged accruals in line with the Grocery Supply Code of Practice.

£ million 2014/15 2013/14

Revenue 881.6 944.8Product group profit* 1.8 18.8Margin 0.2% 2.0%* Before exceptional items and amortisation of


Dairies

7% growth in FRijj sales


Str

ateg

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understanding of how Dairy Crest and

the services we offer are perceived by

our farmers. This unique survey was well

received with the results highlighting the

opportunities for greater segmentation

within our core communication activity –

both for content and method of delivery.

The feedback identified both what we

do well as a business and where there is

scope for us to improve. Our operational

performance scored very highly with the

consistent achievement of high service

levels being recognised as a key benefit.

Electronic communication is a focus as

we develop ‘Farm Connect’, our interactive

farmer website. This provides our farmers

with key management information about

their milk supply together with news about

Dairy Crest and the dairy sector.

The independent White Gold farm

advisory service, which is fully funded

by Dairy Crest, has been expanded

to include a series of new initiatives

to benefit our farmers. These include

‘MilkWell’ to improve herd health and

welfare through better data recording,

‘WaterWell’ to analyse water consumption

and ‘Safe&Well’ to provide guidance on

health and safety for key farm tasks. The

Safe&Well initiative encompasses routine

health checks for our farmers and was

launched during our summer agricultural

shows programme, where we offered

free ‘on the spot’ health assessments to

our farmers.

Milk supply contracts

Our service package supports our

core offer of a fair and competitive milk

price and range of contract options. We

continue to work closely with DCD to

explore opportunities for new contract

options that meet the requirements of

both our farmers and our business. Our

innovative formula pricing mechanism

continues to be very popular with our

farmers with over 20% opting to have a

proportion of their milk priced in this way.

At the start of the year we responded to

farmer feedback for greater simplicity with

the launch of a new ‘Simplifed’ Formula

contract which proved very popular.

We continue to consider variations

to our core contracts, looking at the

compositional quality of milk for our

cheese business and for larger supply

volumes.

In addition, we are working with DCD

to consider the opportunity for a contract

based on the Dairy Futures market,

with the aim of providing farmers with

different options to help manage future

market volatility.

Operational efficiency

Our contracted hauliers maintain their

focus on improving efficiency within

the milk collection operation whilst also

delivering environmental improvement and

meeting a range of service targets for our

farmers.

The on-going vehicle fleet replacement

programme will result in lighter vehicles

with greater capacity. Exploratory work is

also been done with new milk pumping

equipment to reduce pollution and

noise and to further develop automatic

milk sampling equipment to reduce the

opportunity for human error.

We continue to work closely with

our haulage and milk testing partners to

ensure that our milk sampling and testing

procedures are effective and robust at

every stage of the raw milk supply chain.

Looking ahead

We are committed to working in

partnership with our farmers to ensure

that together, we are best placed to take

advantage of market opportunities. In our

Davidstow milk field we are launching a

new farm standards package to recognise

the work our farmers in the South West

are doing in preparation for the production

of demineralised whey powder. In our

milk fields serving the liquid market, we

will further develop our portfolio of supply

contracts to recognise the diverse range

of business models so we can continue to

offer flexibility and choice.

We will continue our support of

the Government’s Voluntary Code of

Practice for milk supply contracts, having

been the first milk processor to fully

embrace this since the launch in 2012.

We are supporting DCD’s work to review

structural changes to their organisation,

including their application to achieve DPO

(Dairy Producer Organisation) status. This

followed a comprehensive evaluation of

the constitutional implications for their

members, carried out through funding they

secured through the Defra ‘Dairy Fund’.

Global volatility in dairy markets had

a huge impact in 2014 and is expected

to continue to be a critical factor going

forward. We and our farmers also have

to deal with any challenge brought about

by the end of European milk quotas.

By working together with DCD and our

farmers, we can help ensure that our

businesses are in the best place to meet

the challenges we face and ensure we

deliver a sustainable supply of top quality

British milk for our customers.

The year ended 31 March

2015 was a year of two dramatically

different periods. The first part of the

year saw milk prices at record highs

with intense competition amongst

milk processors for milk supply. In the

second half of the year, dairy markets

collapsed as milk production soared

on the back of higher prices and

favourable weather conditions. This

resulted in milk prices falling at an

unprecedented scale and speed.

Milk supply

We have managed to achieve a balanced

supply of milk, by carefully monitoring

production levels and customer demand.

Successful new farm recruitment activity

during the year has been scaled back

for the short term with our priority being

to develop our existing milk fields. The

comprehensive service package we offer

to our farmers has enabled us to maintain

our focus on quality and efficiency at a

time when milk prices have been under

significant pressure. This partnership

approach delivers key benefits to our

business and our farmers, including

the long term sustainability of our direct

milk supply, which is fundamental to

our business.

Standards and support

Our office based advisors within the Farm

Business Centre together with our regional

team of Farm Business Managers are the

primary contacts for our farmers. During

the year they have undertaken a number

of practical farm training programmes

to enable them to provide more

comprehensive support and guidance.

Animal health and welfare remains a

key priority as we work with our farmers

to promote best practice and continually

improve milk quality and production

standards. Raising awareness of the

challenges the dairy sector faces from

animal disease and the eradication

programmes that are in place, is one area

of focus. We have worked closely with

Dairy Crest Direct (‘DCD’), the independent

organisation representing our farmers, to

engage veterinary support as part of our

communication and training programmes.

Listening to our farmers

During the summer of 2014 we

commissioned an independent research

project ‘The Voice of the Farmer’.

The objective was to gain a greater

PERFORMANCE CONTINUED

Milk Procurement


Our future success depends on our ability to meet a range of pressing environmental and social needs – that is why Corporate Responsibility (CR) is so important to us.

Mandatory Greenhouse Gas ReportIn line with the requirements of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 our greenhouse gas (‘GHG’) emissions are quantified below.

Green House Gas Emissions for 1 April 2014 to 31 March 2015

2014/15 2013/14 Scope 1 89,377 87,256 Tonnes CO2e

Scope 2 77,612 74,646 Tonnes CO2e

Total Scope 1 and 2

166,989 161,902 Tonnes CO2e

Intensity ratio 78.58 74.71kg CO2e per tonne of milk intake

Emissions from biomass fuel

22,192 27,619 Tonnes CO2e

We follow the GHG Protocol Corporate Accounting and Reporting Standard to calculate emissions from the combustion of fuels (Scope 1) and from purchased electricity, heat, steam and cooling (Scope 2). Carbon emission factors are used to convert each activity that gives rise to GHG emissions to a carbon dioxide equivalent (CO2e) using the latest UK Government conversion factors for Company Reporting. The GHG data reported relates to emissions from activities in the operational control of Dairy Crest Group plc from 1 April 2014 to 31 March 2015 consistent with our financial reporting period.

Scope 1 emissions data includes material sources of fossil fuels used at manufacturing sites and depots and road fuel used in the transport and distribution of intermediate and finished products. Road fuel used

in company cars operated by Dairy Crest for business travel is also included. Minor losses of refrigerants used in cooling equipment have been converted to tonnes of carbon dioxide equivalent and are included for completeness.

Scope 2 emissions data includes material sources of purchased electricity used at manufacturing sites, depots and offices. We employ a ‘per tonne of milk intake’ denominator as the most effective measure of relative performance. This measure is routinely employed for our manufacturing operations and is employed here as an intensity measure for our business as a whole. Consistent with the GHG Protocol emissions from biologically sequestered carbon are reported separate to the other Scopes. These comprise emissions from combustion of biomass fuel at our creamery in Davidstow that significantly reduce Scope 1 emissions from fossil fuels. Emissions from combustion of biomass fuels are not included in the emissions intensity ratio reported above. Absolute Scope 1 and 2 emissions increased in 2014/15 by 3% (with an associated 5% increase in intensity ratio) compared to the previous year. Although the emissions reductions activities described elsewhere in this report (page 24) delivered significant reductions in relative energy used in both manufacturing operations and transport, a number of key factors impacted emissions performance:

(i) Reduced output from biomass boilers at Davidstow mid-year necessitating increased use of fossil fuel. This contributed 1% increase in Scope 1 emissions and is evident in the reduction in emissions from biomass. Steam output from the biomass boilers returned to normal high levels by the end of 2014/15.(ii) Increased operation of Severnside dryer to produce milk powder influenced by commercial drivers in the milk sector. This resulted in increased use of natural gas at Severnside leading to 2% increase in Scope 1 emissions.(iii) 11% increase in the UK Government’s Carbon Emission Factor for electricity supplied from the public grid. This results in a 4% increase in Scope 2 emissions despite a 6% reduction in imported electricity.

Corporate Responsibility

Str

ateg

ic r

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“ I congratulate Dairy Crest for achieving its ranking and look forward to working together to create a fairer society and a more sustainable future” Stephen Howard,Chief Executive, BITC

We use Business in the Community’s CR Index to integrate responsible business practice into our mainstream business operations. It provides a robust framework to systematically measure and manage our progress and allows us to compare the results we are achieving with those of other responsible businesses. We are delighted that Dairy Crest has again come out top in the Business in the Community (‘BITC’) benchmark. In addition we are only one of a handful of participants to

achieve a top rated 5 star score, up from 4½ last year. During the year we increased our focus on community initiatives such as engaging with young people as well as developing a programme to help improve safety on farm for our supplying farmers. More information on recent awards can be found in our CR online report. This includes the progress the business has made against its sustainability pledges.

http://ourcommitments.dairycrest.co.uk

WinnerIGD President’s 2014 Cup

FT FinalistFT Corporate Responsibility Company of the Year 2014


As a leading dairy manufacturer and processor we are aware of global trends and we are determined to play an active role in tackling climate change, reducing waste and looking after our natural resources.

Climate change

Dairy Crest is committed to reducing and

controlling greenhouse gas emissions

associated with our direct operations and

our wider supply chain.

All of our manufacturing sites use

assessment and monitoring tools to

identify energy reduction projects.

In 2014/15, we delivered over 50

projects to reduce electricity and energy

use, including installing digital controls

on the boilers at Kirkby and investing in

high quality and efficient compressed air

at Severnside. These two projects will

reduce CO2 emissions by over 800 tonnes

per year.

Against our target of reducing

carbon emissions from energy used in

manufacturing by 30% by 2020 against

2007 levels we have achieved a 16%

reduction.

To push ourselves further, this year we

committed to increase the proportion of

renewable energy used in manufacturing

to more than 20% by 2020.

By looking at our transport network,

we are on course to reduce its carbon

intensity by 10% by 2020 vs 2013/14 levels.

We have achieved approximately a 7%

reduction since 2007. We have reduced the

distance driven by our primary vehicles by

approximately 150,000 miles, saving over

1,200 tonnes per year of CO2 emissions.

We work with our dairy farmers to

assess their carbon footprint using a

Carbon Trust certified emissions tool. During

2014/15, the proportion of milk supplied from

farms using this tool increased to 27%. We

want 50% of our farmers to have completed

this by the end of 2016.

Each year we provide a voluntary

report via CDP (formerly the Carbon

Disclosure Project) describing our

greenhouse gas emissions management

and performance. In 2014 we achieved our

highest ever score.

Waste

We aim to reduce waste at every point

in our supply chain. Where waste is

unavoidable, we always look for ways

of diverting it from landfill for beneficial

recovery or reuse.

Our aim is for zero waste to go to landfill

by 2015. By the year end we diverted 92%

of operational waste from landfill and we are

focusing on key residual waste streams to

achieve our target of 100%.

We also consider materials used in

our packaging. This year we improved

the design of our plastic milk bottles so

they are now on average 13% lighter. In

2014/15 we reduced our total packaging

footprint by 9% (a total reduction of 20%

since 2010).

In 2014/15 we also helped lead the

IGD’s collaborative ‘Working on Waste’

household food waste campaign.

Water

Parts of the UK have less water available

per person than some southern European

countries. We therefore need to look to

make best use of the water available to us

as well as reducing the amount we use.

In 2014, we commenced a major

project to reduce freshwater abstraction

at Severnside, the largest user of water

across our manufacturing network.

Investment will enable recovery of over

500 million litres of processed water per

year. We are employing similar technology

at Davidstow.

Dairy Crest is on track to meet our

target of reducing water usage by 20%

against a 2007/8 baseline by the end of

2015. We have increased our target to a

30% reduction by 2020.

We are promoting water stewardship

with our dairy farmer suppliers through

‘WaterWell’, our innovative on-farm water

use auditing programme.

PERFORMANCE | CORPORATE RESPONSIBILITY CONTINUED

Environment

16%

since

2007

We hav

e cut

our

CO 2e e

mission

s by

92

%lan

dfill a

voida

nce

8%

sent to landfill

0% our aim

Dairy Crest is reducing

water usage by

20%since 2007/8 We have

increasedour target to

30%by 2020


Str

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Healthier choicesDairy Crest is proud to make healthy and nutritious products. We have continued to invest in our healthier ranges, driving sales through promotions, advertising and innovation. Consumer IRI data shows that the lower fat and added value variants of our brands achieved a collective retail sales value of £58 million in 2014/15, a slight decline from £61.3 million in 2013/14. Cathedral City lighter, continues to lead the lower fat branded Cheddar market, recording a retail sales value of £32.1 million, bigger than the next three rival brands put together. Our lower fat spreads – Clover lighter, Clover lighter than light, Utterly Butterly lightly, Country life lighter and our Clover Additions range – have a collective retail sales value of £25.6 million. Frylight, our one calorie cooking spray, enjoyed another impressive year with sales growth of over 20%. Today the brand has a retail sales value of about £22 million. A real highlight, in February 2015 we launched a new range of FRijj milkshakes

made with 40% less sugar. The range is available in two flavours, Choc-a-Chocolate and Seriously Strawberry, in 471ml bottles. Each bottle sports a distinctive, refreshed blue FRijj logo. The launch demonstrates our commitment to the Department of Health’s Responsibility Deal.

Milk RaceTo highlight the health-giving properties of milk and strengthen the dairy sector’s links with the sporting world, this year, through Dairy UK, we once again sponsored the Milk Race, held in nottingham on 25th May 2014.

InnovationWork started on our £4 million dedicated Food Innovation Centre on the Harper Adams University campus. The partnership with Harper Adams University provides a link into leading agriculture and food research and will help us to continue to develop healthy products.

We are committed to creating healthy, tasty enjoyable products, making it easier for consumers to choose healthier foods.

Marketplace

Ethical supplyIn 2013 we updated our comprehensive ethical supply policy. The policy (which can be found at www.dairycrest.co.uk) extends our vision and values across a diverse and extensive supplier base. Dairy Crest aims to exceed best practice around quality, animal welfare, traceability, allergies and product recalls. Through our team of Direct Supply Managers and the White Gold accreditation service, we work with farmers to ensure animal welfare is of the highest standard possible and the milk we buy is of an exceptionally high quality. We can trace milk and raw materials from farms and suppliers through to finished product and within our manufacturing plants we utilise tools such as Hazard Analysis Critical Control Points (HACCP), and Quality Monitoring Plans (QMP) to identify hazards and put systems and controls in place to ensure critical limits are not exceeded. Our quality management systems are regularly reviewed and audited by our own technical teams and by third parties to ensure they comply with industry standards. In addition to an internally audited programme, each manufacturing site is accredited to the British Retail Consortium Standard and by an independent auditing body.


09/10 10/11 12/13 13/14 14/1511/12

09/10 10/11 12/13 13/14 14/1511/12

Number of accidents reportable to the HSE incl > 3 day lost time accidents Progress against 3-year strategy

147

123

77 76

49

Days lost 4,122

2,984

1,9991,630

1,248 1,209

38

PERFORMAnCE | CORPORATE RESPOnSIBIlITY COnTInUED

At Dairy Crest we are committed to ensuring that the safety of all of our employees, franchisees, contractors and other people affected by our activities is an integral part of managing our business.

Safety firstWe believe such a strong, proactive commitment, which goes beyond legislative requirements, contributes to our business performance by reducing the risk of injuries and drives continuous improvement and engagement. We have made excellent progress against our zero tolerance of unsafe working practices and by the end of March 2015 we had reduced our Accident Incident Rate, including Riddors and over three day lost time accidents, to 588 from the 1,027 base line set in 2013. This 43% reduction means we are well on the way to achieving our challenging target of a 50% reduction in Accident Incident Rate by 2018, against the 2013 baseline. Among the year’s highlights include Chard who achieved more than 1,000 days without a lost time accident, and our nuneaton Prepack operation achieved 987 days. Challenging the behaviour of staff has been key to our success, with much

focus being placed on encouraging staff to engage in near miss reporting and behavioural conversations so that we can continue to make workplaces safer. Against our target of having a 100:1 ratio of near miss and behavioural conversations versus all types of accidents by 2018, we achieved a ratio of 127:1 by the end of March 2015. Some key activities have included a £250 prize draw we hold each quarter for drivers in our secondary and residential operations that have not had an ‘at fault’ collision. At all locations we promote our ‘Stop, Think, Assess, Review’ (STAR) principles to help our staff stay accident free. Finally, aware that driving in winter weather can potentially be more hazardous, this year we issued all of our professional drivers with a ‘Winter Driving Guide’.

Wellbeing at workDairy Crest is proud to take a proactive approach to looking after employees’ health, which we believe results in a happier, more engaged and productive workforce. Through our in-house occupational health team we provide all staff with the opportunity of having a free wellbeing check. Since introducing this free service, and including the mandatory health checks for staff performing specific roles, by the end of March 2015 we had carried out 6,422 health related checks across the business.

Farm Health & Safety programme In 2014, we expanded this service to our dairy farmers. Our occupational health team provided a free health check to 219 farmers at local shows, including the Royal Cornwall Show, and our regular farmer meetings.

Wellbeing daysSince March 2014, we have been running special wellbeing days across all of our manufacturing sites and depots, addressing heart health, mental health, sleep and healthy eating. Significantly these four topics were chosen after our occupational health advisors analysed the results of the staff health screenings they conducted in 2013. As a result of our proactive approach to employee wellbeing we were delighted to have been shortlisted for the 2014 Bupa Workwell Engagement and Wellbeing Award and were named as Waitrose’s overall ‘Treating People Fairly’ supplier of the year.

Workplace

We offerall staff a

free healthcheck“ I took one of the health

assessments at the Royal Cornwall Show and I think this campaign to encourage farmers to think about their health and also the safety of their holdings is really welcome.” George Eustice MP, Farming Minister has a free health MOT at the Royal Cornwall Show


Powered by Dairy Crest

Our community programme supports four key areas; looking after the countryside, promoting healthy living, supporting education and employability and engaging with local communities.

Looking after the countryside

In 2014 we were delighted to announce

the Prince’s Countryside Fund as our staff

charity partner, building on the relationship

the charity already has with our Country

Life and Davidstow brands. The charity,

set up by HRH The Prince of Wales in 2010,

aspires to a healthy, economically vibrant

countryside – an aspiration supported by

Dairy Crest’s vision and values.

In addition to contributing £100,000

to the Fund, staff raised money

through activities including cycling and

baking challenges. In March 2015 we

co-sponsored a racing day at Ascot.

Through the Fund, we support

the Prince’s Dairy Initiative, offering

tailored support to vulnerable small and

medium sized dairy farms. As part of

the programme non-aligned farmers

participate in a series of practical

workshops delivered locally by dairy sector

experts. 216 farmers have enrolled on the

programme since 2012 and all are still in

business. An independently conducted

evaluation showed that the majority feel

more confident about their future in the

dairy sector as a result of participating.

We are also long term supporters of

‘Open Farm Sunday’. On 8 June 2014,

over 300 farms opened their gates to the

public to demonstrate food production

methods.

Promoting healthy living

Dairy Crest always promotes healthy

living. Through Meals on Wheels, staff

voluntarily deliver healthy, fresh food to

the most vulnerable in our communities.

During winter 2014, we also donated over

8,500 litres of milk and enough Frylight

to make over 30,000 meals to Crisis, the

homeless charity.

Supporting education and

employability

We want to encourage young people

into the food and manufacturing sector.

Through the IGD’s Feeding Britain’s Future

programme, employees have helped

over 140 young people find employment

since 2013. In 2014, we hosted local

unemployed youngsters at Davidstow

to help with CV-writing skills. For the

first time, 6 youngsters then completed

two weeks’ work experience at the site.

Every candidate had the opportunity to

gain a professional food hygiene and

preparation certificate.

We worked with M&S to deliver

their youth unemployment programme,

Movement to Work. Dairy Crest staff

pledged to offer 80 young people 80 hours

of work experience by June 2015. By April

2015 91 placements had been offered.

Dairy Crest supports community

educational programmes, including

food science placements at Reading

and Nottingham Universities. We also

support Festomane, a manufacturing and

engineering festival in Gloucestershire.

This year we ran a competition for schools

to create a new flavour FRijj milkshake as

well as a ‘career day’ at a local dairy farm.

This year staff helped at schools

careers sessions through IGD’s ‘Feeding

Britain’s Future’ programme. By the

end of March 2015, we had visited a

total of 8 schools and reached over 200

young people.

Dairy Crest has also signed up to

the ‘females in factories’ ambassador

campaign by appointing a female champion

to visit secondary schools and talk about

manufacturing as a career option.

Local community programme

This year staff have supported over 124

local causes through volunteering, product

donations and financial donations.

Str

ate

gic

re

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rt

Community

£100,000contribution to the Prince’s Countryside Fund


1511 12 13 14 1511 12 13 14 1511 12 13

14

Cash generated from operations(£m)

19.7 20

.4

20.7

21.3

128.

1

84.5

19.1

-13.

8

35.3

85

123

19

49

69

21.7

Total dividends per share (pence)

Gearing(%)

Mar 08

Sep 08

Mar 09

Sep 09

Mar 10

Sep 10

Mar 11

Sep 11

Mar 12

3.0

2.5

2.0

1.5

1.0

0.5

0

500

450

400

350

300

250

200

150

100

50

0

Net debt history Net debt (£m – left scale)Net debt / EBITDA (multiples – right scale)

416

491

475

380

337

335

312

365

336

Sep 12

Mar 13

Sep 13

Mar 14

Sep 14

Mar 15

76 60 192

142

210

199

1511 12 13 14 1511 12 13 14 1511 12 13 14

1,50

2.2

1,51

4.7

1,38

1.6

1,39

1.0

1,32

9.8

Revenue(£m)

Adjusted earningsper share (pence)

29.9

28.9

29.4

40.8

38.0

Product groupprofit (£m)

73.5

68.6

68.4 75

.2

68.7

Before exceptional items and amortisation of acquired intangibles; includes associates

Before exceptional items, amortisation of acquired intangibles and pension interest

Overview

Dairy Crest has continued to make progress in difficult trading conditions and 2014/15 saw an important step in delivering against our long term strategy.In November 2014 we announced that we had agreed to sell our Dairies operations to Müller. The sale has been approved by shareholders but remains subject to the approval of the CMA. Completion of this sale will deliver a step-change in delivering our strategy of creating a value-added, streamlined business with reduced exposure to commoditised markets and the ability to deliver future growth both organically and through acquisitions.

Overall, the financial performance of the Group during the year has been satisfactory. The performance of the operations we expect to retain, namely Cheese and whey and Spreads and butter (“the Retained business”) has been strong with revenue and product group profits up 0.5% and 19.3% respectively and a fully costed margin of 15%. However, profits in our Dairies operations have reduced markedly in the year reflecting strong competition in liquid milk markets and sharp falls in commodity realisations.

We have continued to invest in the businesses we are retaining. Our investment at our spreads site at Kirkby enabled us to close Crudgington during the year and the new demineralised whey and galacto-oligosaccharide facilities at Davidstow, which are nearing completion, will increase future whey returns. Having completed these investments, the businesses to be retained will run out of five well-invested, efficient processing sites.

PeRfORMANCe CONTINueD

Financial review


Sale of Dairies operations

The sale of our Dairies operations to Müller remains on track and,

subject to clearance by the CMA, is expected to complete during

the year ending 31 March 2016.

The sale includes the FRijj brand and bulk butter manufacture

and the Dairies supporting overhead structure to Müller for £80

million, payable in cash, on completion. This includes the factories

at Foston, Chadwell Heath and Severnside. It also includes the

Hanworth glass bottling site, where Dairy Crest has consulted with

employees on the site’s future, and the depot distribution network.

Dairy Crest will retain full ownership of the closed dairies at Totnes

and Fenstanton, its Chard site and a number of previously closed

depots and will sell these in the future.

Under the terms of the sale agreement the two companies will

also enter into a supply agreement whereby Müller will sell bulk

butter to Dairy Crest for five years. In addition Dairy Crest will

provide certain transitional IT services to Müller.

Dairy Crest will continue to be responsible for the defined benefit

pension obligations in relation to the closed Dairy Crest Group

Pension Fund.

Any consideration payable by Müller is subject to upward or

downward adjustments for variances from agreed levels of

working capital, capital expenditure and the profitability of Dairy

Crest’s Dairies operations and will also be adjusted to reflect

profits made on the sale of properties included in the transaction

that are sold by Dairy Crest before completion.

Müller has the ability not to complete their purchase of our Dairies

operations should there be a material deterioration of more than

£20 million in the agreed level of profitability of Dairy Crest’s

Dairies operations before completion. At this time we do not

anticipate that there will be such a material deterioration in the

profitability of our Dairies operations before completion. Müller

may also not complete if any of our four dairies are inoperable

when completion is due.

The sale constitutes a Class 1 transaction for Dairy Crest pursuant

to the Listing Rules. Shareholder approval was received on 23

December 2014.

Following shareholder approval for the sale, we are separating

our Dairies operations, including the relevant IT systems, from

the rest of the business. This creation of a stand-alone Dairies

operation is necessary for completion of the sale but also ensures

that supporting overhead costs are fully transferred along with the

underlying business. Furthermore, it results in both the retained

business and the Dairies business staying focussed on delivering

their plans until such time as the sale completes.

Because the sale remains conditional upon approval from the

CMA it was not, at 31 March 2015, considered to have met the

“highly probable” criteria required under IFRS 5 in order for the

Dairies business to be classified as held for sale. This judgement

will be kept under review as the CMA continues its review of the

transaction.

We continue to provide product group analysis consistent with

prior years to assist the users of the Financial Statements although

the Group operated as one segment throughout 2014/15.

Product group revenue 2015£m

2014£m

Change£m

Change

Cheese and whey 274.4 264.6 9.8 3.7%

Spreads and butter 170.0 177.4 (7.4) (4.2%)

Other 3.8 4.2 (0.4) (9.5%)

Retained business 448.2 446.2 2.0 0.4%

Dairies 881.6 944.8 (63.2) (6.7%)

Total external revenue 1,329.8 1,391.0 (61.2) (4.4%)

Revenues from our Retained business increased marginally which

represents a good performance in categories experiencing price

deflation. In particular, Cathedral City has had another strong

year with revenue up by 5%. Conversely, our Dairies operations

have seen some volume declines along with significant price

deflation and overall revenue has reduced by 6.7% in the year to

£881.6 million.

Product group profit 2015£m

2014£m

Change£m

Change

Cheese and whey 33.1 39.3 (6.2) (15.8%)

Spreads and butter 33.8 16.8 17.0 101.2%

Retained business 66.9 56.1 10.8 19.3%

Share of associate – 0.3 (0.3) n/a

Dairies 1.8 18.8 (17.0) (90.4%)

Total product group profit 68.7 75.2 (6.5) (8.6%)

Remove share of

associate – (0.3) 0.3 n/a

Acquired intangible

amortisation (0.4) (0.4) – –

Group profit on

operations (pre-

exceptional items) 68.3 74.5 (6.2) (8.3%)

Overall Group product group profit (before interest, acquired

intangible amortisation and exceptional items) fell by 8.6% to £68.7

million. However, product group profit of the businesses we are

retaining grew by 19.3% to £66.9 million.

Cheese and whey profits reduced somewhat after a very strong

year ended 31 March 2014 as the cost of sales reflected milk

cost increases in that year and whey realisations softened in the

second half of the year ended 31 March 2015. Lower milk input

costs during the year ended 31 March 2015 have resulted in the

cost of cheese in stock falling. However, due to the maturity profile

of cheese, this will not be fully reflected in reduced cost of goods

sold until the second half of the year ending 31 March 2016.

Spreads and butter profits were higher following a difficult 2013/14

principally as a result of significantly lower cream input costs.

Overall margins in the retained businesses increased from 13%

in 2013/14 to 15% in 2014/15. These margins are stated after

allocating all costs including central administrative overheads of

the Group.

Dairies profits fell despite lower milk input costs, reflecting the

competitive marketplace and significantly lower dairy commodity

realisations. Within this, profits from the sale of closed depots

were marginally lower at £17.6 million (2014: £18.2 million). The

Dairies business stabilised somewhat in the second half of the

year and losses (before property profits) reduced from £11.9

million in the first half to £3.9 million in the second half. However,

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Profit before tax 2015£m

2014£m

Change£m

Change

Total product group profit 68.7 75.2 (6.5) (8.6%)

Finance costs (8.1) (9.9) (1.8) (18.2%)

Adjusted profit before tax 60.6 65.3 (4.7) (7.2%)

Amortisation of acquired

intangibles (0.4) (0.4) –

Exceptional items (36.3) (10.4) (25.9)

Other finance expense –

pensions (1.8) (0.3) (1.5)

Reported profit before tax 22.1 54.2 (32.1) (59.2%)

Adjusted profit before tax (before exceptional items and

amortisation of acquired intangibles) decreased by 7% to £60.6

million. This is managements’ key Group profit measure. Reported

profit before tax of £22.1 million represents a £32.1 million

decrease from 2014 predominantly due to the higher level of

exceptional items incurred in 2015.

Taxation

The Group’s effective tax rate on continuing operations fell slightly

to 14.0% (2014: 14.6%). The effective tax rate continues to be

below the headline rate of UK corporation tax due to property

profits on which tax charges are offset by brought forward capital

losses or roll-over relief.

Group profit for the year

The reported Group profit for the year was £22.1 million (2014:

£54.2 million).

Earnings per share

The Group’s adjusted basic earnings per share from continuing

operations fell by 6.9% to 38.0 pence (2014: 40.8 pence). Basic

earnings per share from continuing operations, which includes

the impact of exceptional items, pension interest expense and

the amortisation of acquired intangibles, amounted to 15.0 pence

(2014: 35.8 pence).

Dividends

We remain committed to a progressive dividend policy and have

continued to deliver against that policy by increasing our proposed

dividend. The proposed final dividend of 15.7 pence per share

represents an increase of 0.3 pence per share – a 1.9% increase.

Together with the interim dividend of 6.0 pence per share (2014:

5.9 pence per share) the total proposed dividend is 21.7 pence per

share (2014: 21.3 pence per share). The final dividend will be paid

on 6 August 2015 to shareholders on the register on 3 July 2015.

Dividend cover of 1.8 times is within the target range of 1.5 to 2.5

times (2014: 1.9 times).

Pensions

The latest full actuarial valuation of the closed defined benefit

pension scheme was performed at 31 March 2013 and resulted in

an actuarial deficit of £105 million taking into account the one-off

contribution of £40 million we made to the scheme in April 2013.

the dairy sector remains challenging and contract renewals and

continued weak commodity returns will continue to put pressure

on our Dairies operations in 2015. Although we retained our

contract to supply Morrisons for a further three years following a

competitive tender, the volumes we expect Morrisons to purchase

have reduced by around one third from March 2015.

Exceptional items

Pre–tax exceptional charges in the year totalled £36.3 million

(2014: £10.4 million). Cash exceptional operating costs reduced to

£19.8 million (2014: £20.8 million).

Exceptional charges of £16.7 million were associated with the final

consolidation of Spreads and butter production at Kirkby along

with the installation of a bulk butter churn at Severnside and the

creation of a new innovation centre at Harper Adams University.

The Crudgington site was closed in December 2014 and any

further exceptional costs associated with the completion of the

Innovation Centre will be more than offset by future exceptional

profit from the sale of the Crudgington production site.

Exceptional costs of £3.4 million relate to the investment in

demineralised whey and galacto-oligosaccharide. These relate

predominantly to incremental site costs incurred as a result of the

significant works being undertaken, for example additional site

shut downs. These projects remain on track for completion later

in 2015.

In September 2014 we announced the future closures of our glass

bottling site at Hanworth and our specialist cream potting facility

at Chard. £11.8 million of exceptional charges have been made in

respect of these closures of which £9.2 million are non-cash asset

write downs and accelerated depreciation.

Further exceptional costs of £4.3 million have been charged in

respect of the proposed sale of our Dairies operations. These

include costs associated with the transaction, predominantly

professional fees as well as costs relating to the separation of the

Dairies business into a standalone entity.

Finance costs

Finance costs of £8.1 million reduced by £2 million in the year

reflecting some capitalised interest on the major projects at Kirkby

and Davidstow as well as the repayment of £27 million of loan

notes in April 2014 that were at effective fixed rates of 4.97%.

Interest cover excluding pension interest, calculated on total

product group profit increased to 8.5 times (2014: 7.6 times).

Other finance expenses, which are derived by applying the

discount rate to pension scheme assets and liabilities at the start

of each financial year, increased to £1.8 million (2014: £0.3 million).

These amounts are dependent upon the pension scheme position

at 31 March each year and are volatile, being subject to market

fluctuations. We therefore exclude this item from headline adjusted

profit before tax.

PERFORMANCE | FINANCIAL REVIEW CONTINUED


During the year ended 31 March 2015 the Group paid £13 million

cash contributions into the scheme in line with the new schedule

of contributions agreed with the Trustee in March 2014. This level

of contributions will continue for the year ending 31 March 2016

before increasing to £16 million for the year ending 31 March 2017.

During the year the focus of the Trustee and the Group has been

to reduce the scheme’s exposure to equities in line with the

derisking flight path agreed as part of the 2013 actuarial review.

The proportion of assets (excluding insurance) held in higher risk/

higher return type assets has reduced from 75% at March 2014 to

61% at March 2015.

The reported deficit under IAS 19 at 31 March 2015 was £41.4

million a decrease of £16.3 million from March 2014. Asset

returns have been strong during the year and have offset a further

reduction in the discount rate used to measure liabilities. We

continue to stick to a derisking programme that targets a self-

sufficient scheme by 2019 requiring returns at that point of only

0.5% above gilt yields.

Cash flow

Our ambition is for the business to generate strong free cash

flows in future years and we are making good progress towards

this target. Pension contributions have reduced from levels seen

in previous years and lower milk input costs have reduced the

value of cheese stocks. Capital expenditure, which has been

high for several years and peaked this year, will fall significantly

following the completion of the demineralised whey and galacto-

oligosaccharide projects in Davidstow in the first half of 2015/16.

Furthermore, the sale of our Dairies operations will reduce

exceptional restructuring costs in future years and result in one-off

sales proceeds.

In the year ended 31 March 2015 cash generated by operations

was £35.3 million (2014: £13.8 million outflow). This includes a

working capital increase of £12.8 million albeit there has been a

working capital reduction of £27.8 million in the second half of the

year. Working capital changes reflect lower cost cheese stocks

offset by the timing of customer receipts and supplier payments

at the end of the year. Cheese stock valuations should continue to

decrease in the year ending 31 March 2016 as higher cost cheese

is sold and replaced in stock with that made at reduced milk

input costs. Cash generated by operations also reflects reduced

payments to the pension scheme as described above and

exceptional cash costs of £19.8 million (2014: £20.8 million).

Cash interest payments amounted to £10.5 million (2014: £14.0

million). There were no net tax payments or receipts (2014: net

receipt of £2.1 million).

Capital expenditure of £80.1 million (2014: £58.8 million) reflects

the investments at Kirkby, Harper Adams and, in particular,

at Davidstow, which together totalled £53.3 million as well as

ongoing expenditure elsewhere in the business. In total capital

expenditure was somewhat higher than we anticipated as we

took the opportunity to accelerate investment in some other site

infrastructure at Davidstow to avoid disruption in the future. We

expect capital expenditure to fall below levels of depreciation once

our investment in Davidstow is complete in summer 2015.

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Proceeds from property disposals remain strong. In the year

ended 31 March 2015 these totalled £21.1 million (2014: £25.1

million).

Net debt

Net debt includes the fixed Sterling equivalent of foreign currency

loan notes subject to swaps and excludes unamortised facility

fees.

Net debt increased from £142.2 million at 31 March 2014 to

£198.7 million at 31 March 2015, somewhat higher than was

anticipated due to the working capital movements and higher

capital expenditure referred to above. However the ratio of net

debt to EBITDA at 31 March 2015 remained within our target

range of 1.0 to 2.0 times. Looking ahead, we expect net debt to

fall by at least £20 million in the year ending 31 March 2016 mainly

as a result of reduced capital expenditure.

At 31 March 2015, gearing (being the ratio of net debt to

shareholders’ funds) was 69% (2014: 49%).

Borrowing facilities

The Group has £145 million loan notes outstanding which mature

between 2016 and 2021 and a £170 million plus €90 million

revolving credit facility expiring in October 2016. We expect to

refinance our revolving credit facility in 2015.

Treasury Policies

The Group operates a centralised treasury function, which controls

cash management and borrowings and the Group’s financial risks.

The main treasury risks faced by the Group are liquidity, interest

rates and foreign currency. The Group only uses derivatives to

manage its foreign currency and interest rate risks arising from

underlying business and financing activities. Transactions of a

speculative nature are prohibited. The Group’s treasury activities

are governed by policies approved and monitored by the Board.

Going concern

The financial statements have been prepared on a going concern

basis as the Directors are satisfied that the Group has adequate

financial resources to continue its operations for the foreseeable

future. In making this statement, the Group’s Directors have:

reviewed the Group budget, strategic plans and available facilities;

have made such other enquiries as they considered appropriate;

and have taken into account ‘Going Concern and Liquidity Risk:

Guidance for Directors of UK Companies 2009’ published by the

Financial Reporting Council in October 2009.

Tom Atherton Finance Director

20 May 2015


BOARD OF DIRECTORS AND ADVISERS

32

5

7

4

6

1

Dairy Crest is led by an experienced Board of Directors, which today comprises two Executive Directors, one Non-executive Chairman and three independent Non-executive Directors. Together, the Executive Directors have over 30 years experience of the business.

The Board sets strategy and monitors progress. Day-to-

day matters are the responsibility of the Management

Board, which today comprises the two Executive

Directors, the Company Secretary & General Counsel

and four other senior managers.


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1. Mark Allen

Chief Executive ◊ Δ

Appointed a Director in 2002 and became Chief Executive in January

2007. He joined Dairy Crest in August 1991. He was formally with

Shell UK Ltd. He is a Trustee for The Prince’s Countryside Fund a

Non-Executive Director of Howden Joinery Group Plc and a member

of the GLF Schools Board and the Dairy UK Board.

2. Tom Atherton

Finance Director ◊ Δ

Appointed May 2013. A Chartered Accountant who has worked for

Dairy Crest for over 9 years. Prior to his appointment to the Board

he served as Director of Financial Control. He has previously held

senior finance positions in Logica plc and Thorn plc.

3. Stephen Alexander

Chairman ‡

Appointed as a Non-executive Director in January 2011, as

Chairman in September 2014 and Chairman of the Nomination

Committee in March 2015. Prior to being appointed Chairman,

Stephen served as Remuneration Committee Chairman. He is

Chairman of Immediate Media Company Ltd and of Rhubarb Food

Design Ltd, an Operating Partner at OpCapita LLP and Chairman

of Look Ahead Care and Support. Previously Chairman of Maltby

Capital Ltd (parent company of EMI Group), Chairman of Odeon

Cinemas, Chief Executive of Hillsdown Holdings Ltd and held senior

positions with Allied Domecq PLC and Imperial Foods. He was also

Senior Independent Director at Devro plc.

4. Richard Macdonald

Non-Executive Director * † ‡ ◊

Appointed as a Non-executive Director in November 2010, as

Senior Independent Director and a member of the Audit Committee

in May 2012 and as Chairman of the Remuneration Committee in

November 2014, prior to which he was Chairman of the Corporate

Responsibility Committee. Richard had a 30 year career with the

National Farmers Union, serving as Director General for 13 years.

He is a Non-executive Director of Moy Park Limited and the

Environment Agency, a Governor of The Royal Agricultural University

Cirencester, Vice Chairman of the National Institute of Agricultural

Botany and became Chairman of Farm Africa in 2013.

5. Andrew Carr-Locke

Non-Executive Director * † ‡

Appointed as a Non-executive Director and Chairman of the Audit

Committee in August 2009. A Fellow of the Chartered Institute of

Management Accountants, he has previously held senior finance

positions at Courtaulds Textiles, Diageo, Bowater Scott and Kodak

and was Group Finance Director at George Wimpey plc until 2007.

More recently he was Executive Chairman of Countryside Properties.

He has previously held Non-executive directorships at Royal Mail

Holdings, Venture Production and AWG and was appointed a Non-

executive Director of Grainger plc in March 2015.

6. Sue Farr

Non-Executive Director * † ‡ ◊

Appointed as a Non-executive Director in November 2011,

Chairman of the Corporate Responsibility Committee in November

2014 and a member of the Audit and Nomination Committees in

March 2015. She is a member of the Executive Management Team

of Chime Communications PLC, a position she has held since 2003.

She has extensive marketing communications experience, having

served as Marketing Director of the BBC for 7 years, Director of

Corporate Affairs, Thames Television for 3 years and Director of

Corporate Communications, Vauxhall Motors. Sue was appointed a

Non-executive Director and member of the remuneration committee

of Millennium & Copthorne Hotels plc in December 2013, a Non-

Executive Director and a member of the Nomination, Remuneration

and Audit Committees of Accsys Technologies PLC in November

2014 and a Non-Executive Director of British American Tobacco

p.l.c. in February 2015. She has previously held positions as a

Trustee of the Historic Royal Palaces and as a Non-executive

Director of Motivcom plc.

7. Robin Miller

Company Secretary & General Counsel ◊ Δ #

Appointed in April 2008. He is a solicitor having worked in private

practice and in-house in both retail and international manufacturing.

Auditor

Ernst & Young LLP

Solicitors

Eversheds LLP

Principal Bankers

The Royal Bank of

Scotland plc

Rabobank International,

London Branch

Lloyds TSB plc

Santander UK plc

Corporate Brokers

J. P. Morgan Cazenove

Jefferies Hoare Govett

Registered Office

Claygate House,

Littleworth Road,

Esher, Surrey

KT10 9PN

Registered in England

No. 3162897

* Audit Committee Member

† Remuneration Committee Member

‡ Nomination Committee Member

◊ Corporate Responsibility

Committee Member

Δ Management Board Member

# Not a Board Member


Mike Barrington

Group Supply Chain Director Δ

Before joining Dairy Crest in 2011, Mike

held senior management positions

with Cadbury Schweppes and Kraft

Foods, latterly Manufacturing Director

for Cadbury in the UK & Ireland. Mike

joined Dairy Crest as Supply Chain

Director, Dairies and was appointed to

his current role in April 2013.

MANAGEMENT BOARD

Day-to-day matters are the responsibility of the Management Board, which currently comprises the two Executive Directors, the Company Secretary & General Counsel, the Managing Director, Dairies, the Group Commercial Director, the Group Supply Chain Director and the Group HR Director. Other senior managers attend by invitation. The Management Board normally meets weekly.

◊ Corporate Responsibility

Committee Member

Δ Management Board Member

Mike Sheldon

Managing Director, Dairies Δ

Mike joined Dairy Crest from PepsiCo

22 years ago. He has held several

senior management positions within the

business. He took up his current role in

November 2014.

Robert Willock

Group HR Director ◊ Δ

Robert joined Dairy Crest 9 years

ago as HR Director, Dairies from The

Maersk Company where he was

Director of Human Resources. He was

appointed to his current role in April

2013.

Adam Braithwaite

Group Commercial Director Δ

Adam joined Dairy Crest in 2002

and has held a number of senior

management positions within the

business. He was appointed Group

Commercial Director in April 2013

and joined the Management Board in

November 2014.


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Over the last twelve months we have undergone a period of change

as a Board as Anthony Fry, our previous Chairman, was taken ill in

the spring 2014. Anthony’s illness coincided with a critical time in

Dairy Crest’s development. We were able as a Board to cope during

that challenging period because we had in place an effective

governance framework and a Board comprising Directors equipped

with resilience and the breadth and depth of experience to cope with

unexpected challenges and therefore able to continue to focus on

delivering our strategy. I am grateful to Richard Macdonald for his

leadership as Acting Chairman during 2014 and for his continued

support as Senior Independent Director. Under Richard’s guidance

the Board was equipped to manage an unexpected succession

from one Chairman to another and to ensure that process did not

disrupt the Board’s work and the execution of the Company’s

strategy.

The smooth succession from one Chairman to another, albeit in

unexpected circumstances which none of us would have wanted to

have arisen, clearly demonstrates the importance of good

governance. Our focus within our governance framework on

strategy, leadership and succession planning, amongst other

matters, shows, I believe, the benefits of good corporate governance

and is a clear example of the effectiveness of the governance

framework we have in place. As a Board, we recognise that

appropriate planning and procedures are required not only for the

efficient operation of the Board but for the business as a whole.

In my introduction to this, our Corporate Governance report, I have

sought to demonstrate how we have brought to life the principles of

good governance. Good governance is however, broader than good

succession planning and having the right mix of skills and

experience required to deal with unexpected events. Amongst other

matters it includes ensuring that the right tone is set at the top of our

organisation in order to guide its behaviour and to ensure that our

organisation lives by and demonstrates the right values. Those

values must in turn enable entrepreneurial and prudent management

of the resources which you, our shareholders, have entrusted to us

so that we can deliver long term success for Dairy Crest and all its

stakeholders. In this Report we demonstrate how we have

addressed those broader principles of good governance through,

amongst other things, ensuring that we have in place an effective

internal framework of systems and controls which clearly define

authority and accountability while at the same time enabling the

appropriate management of risk.

CORPORATE GOVERNANCE

Governance framework

The diagram below sets out the structure used to govern the

Company. Through our governance structure we have established a

clearly defined set of values which are communicated throughout

the Group. Our values are supported by a range of procedures and

guidelines providing an appropriate roadmap to inform employees’

behaviour. Together with external governance codes they set an

effective framework for the Group’s standards and governance. In

order to prepare ourselves for the sale of the Dairies business we

have refocused our commercial structures into Dairies, Cheese and

Spreads and butters. The HR, Finance and Legal teams remain in

place alongside the Dairies and Cheese, Butter, Oils & Spreads

businesses.

As Chairman my role is to lead the

Board and ensure it delivers against

its responsibilities. A strong

governance framework enables the

Board to do so, helping to ensure it

has clarity of purpose and a

common understanding of the

responsibilities and accountabilities

which it must keep in mind when

going about its business. The

Board has two key responsibilities. It must provide

entrepreneurial leadership to the business while at the same time

exerting appropriate control. Our governance framework helps

the Board to focus on the detailed activities which sit within those

two broad responsibilities. As a Board we are committed to

delivering the best possible outcomes and we are conscious of

the need to take account of and balance the interests of all of our

stakeholders.

Chairman’s introductionA key benchmark is our compliance with the UK Corporate

Governance Code published by the Financial Reporting Council

(‘FRC’) in September 2012 (‘Code’) – which can be found at

www.frc.org.uk. I am pleased to report that we have complied with

all relevant provisions of the Code during the 2013/14 year, although

as a result of the changes which the Board has undergone we have

had to delay slightly our Board evaluation process. The evaluation of

our Board is ongoing and we cover it in more detail later in this

Corporate Governance report.

The Board recognises its collective responsibility for the governance

of the Company. Its strong governance framework (as illustrated

below) is supported by a combination of clear values, which are

discussed elsewhere in this Report (see pages 6 to 7), appropriate

policy, and an environment of transparency and accountability. The

Board’s central role is to work alongside the executive team

providing support, challenge, guidance and leadership. I believe that

the Board of Dairy Crest is well balanced with a broad range of skills,

diversity and experience.

My key objective for the coming year is to maintain focus on

ensuring that we have the right people and processes in place to

manage the transformation which Dairy Crest is undergoing within

an appropriate risk framework.

Stephen Alexander Chairman

20 May 2015

RemunerationCommittee

AuditCommittee

GroupBoard

NominationCommittee

CRCommittee

Demand HR Finance Legal

ManagementBoard

Dairies Procurement Supply


The Board

Role: The Board is collectively responsible for the entrepreneurial

leadership and control of the Company against a framework of

prudent and effective controls enabling the assessment and

management of risk. As custodian of the Group’s strategic aims,

vision and values it ensures that the necessary human, financial and

other resources necessary for the delivery of long term success of

the Group are in place and scrutinises and reviews management’s

performance. Each Director is aware of his/her responsibilities,

individually and collectively, to promote the long term success of the

Company consistent with their statutory duties.

How it operates: The Board’s agenda through the year is pre-

planned with sufficient time allowed to enable the Board to react and

respond to the changing landscape of the Group’s business as the

year progresses. The Board’s key accountabilities are:

Approval of the Group’s long term objectives and business

strategy

Approval of the annual operating and capital expenditure budgets

Maintaining an overview and control of the Group’s operating and

financial performance

Ensuring the maintenance of a sound system of internal control

and risk management

Oversight of the Company’s governance and compliance

framework, including key Group policies, for example Health and

Safety and Business Conduct and considering regulatory changes

and developments

A formal schedule of matters reserved has been adopted by the

Board and is available on the Group’s website www.dairycrest.co.uk.

Delegation of authority: the Board has delegated authority to five

committees;

Audit Committee

Nomination Committee

Management Board

Corporate Responsibility Committee

Remuneration Committee

The individual reports of the Audit, Nomination, Corporate

Responsibility and Remuneration Committees prefaced by an

introduction from the chairman of each can be found at pages 40 to

62. The Committees’ terms of reference, which to the extent

required, comply with the Code, can be found on the Group’s

website. Day-to-day management responsibility rests with the

Management Board which under its terms of reference has

delegated authority from the Board over operational decisions.

Composition: At the date of this Report, the Board comprises six

Directors (two Executive, a Non-executive Chairman (who was

independent on appointment) and three independent Non-executive

Directors). Directors’ biographical details, experience, responsibilities

and other commitments are set out at pages 32 to 33.

Balance and Independence: With three independent Non-

executive Directors and a Chairman who was independent on

appointment, all of whom are free of any relationship which could

materially interfere with the exercise of their independent judgement,

the composition of the Board satisfies the requirements of the Code.

The Board considers that the Directors demonstrate the suitable

breadth of experience and backgrounds required to provide effective

leadership for the Group. Details of the Group’s approach to diversity

are set out in the Report of the Nomination Committee at page 43.

Chairman and Chief Executive: These roles are distinct and

separate with clearly defined accountabilities set out for each which

can be found on the Group’s website (Chairman/Chief Executive

Division of Responsibilities). The Chairman has particular

responsibility for the effectiveness of the Group’s governance. He is

accountable for ensuring the Board’s effectiveness in discharging its

responsibilities, safeguarding shareholder and other stakeholder

interests and promoting effective communication with shareholders.

Together with the Chief Executive and with the assistance of the

Company Secretary he sets the agenda for Board Meetings and

directs the focus of the Board ensuring that adequate time is

available for all agenda items. In promoting a culture of openness

among the Board and ensuring constructive relations between

Executive and Non-executive Directors, he facilitates the effective

contribution of all Directors. To help ensure a proper dialogue with all

Directors the Chairman meets with Directors individually and talks to

the Non-executive Directors in the absence of Executive Directors.

Senior Independent Director: Following Stephen Alexander’s

appointment as Chairman, Richard Macdonald has reverted to his

role as Senior Independent Director, in which he provides a

sounding board to the Chairman. He also acts as a lightning rod

should matters arise which Directors wish to discuss with someone

other than the Chairman. He is available to shareholders and other

stakeholders in the Group’s business as needed; and where

required, he deputises for the Chairman.

Non-executive Directors: All Non-executive Directors (including

the Chairman) confirmed on appointment that they had sufficient

time available to fulfil their obligations as Directors and that they

would inform the Board should the position change. Details of the

Chairman’s other significant professional commitments are included

in his biography (page 33). The Board is satisfied that he continues

to have sufficient time available to fulfil his obligations as a Director

and Chairman. All significant commitments of Non-executive

Directors were disclosed to the Board prior to their appointment and

the Board was informed of subsequent changes.

As members of a unitary board, the Non-executive Directors

scrutinise management’s performance in meeting agreed goals and

objectives. The Board as a whole monitors the reporting of

performance. The Chief Executive’s objectives, achievement of

which influences his remuneration, are agreed with the

Remuneration Committee following initial discussion with the

Chairman. Performance against those objectives is scrutinised by

the Remuneration Committee. The Audit Committee monitors and

scrutinises the integrity of financial information as well as the

robustness and defensibility of financial controls and systems of risk

management. The Remuneration Committee is responsible for

determining appropriate levels of remuneration for Executive

Directors. The Nomination Committee has a prime role in selecting

and recommending Directors for appointment and in succession

planning. The appointment of Directors to or the removal of Directors

from the Board is a matter reserved to the Board as a whole.

The Chairman periodically meets individually or collectively with the

Non-executive Directors in the absence of the Executive Directors.

Were Directors to have unresolved concerns about the running of

the Company or a proposed action, they would be recorded in the

Board minutes. The Non-executive Directors recognise the principle

that if on resignation from the Board a Director has unresolved

concerns, that Director should provide a written statement to the

Chairman for circulation to the Board. The concept that Non-

executive Directors are free to question any executive decision of the

Company is enshrined in the engagement letter of each Non-

executive Director.

CORPORATE GOVERNANCE CONTINUED


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Board and main Committee meetings

The Directors named in the table below held office during the year. The number of Board and Committee meetings attended by Directors

in the year is shown in the table below. The numbers in brackets show the maximum number of meetings Directors could have attended

during 2014/15.

Board

(scheduled in

annual work

plan)

Board

(additional to

those schedule

in annual

work plan)

Audit Remuneration Nomination Corporate

Responsibility

Management

Board

Mr M Allen 8(8) 2(2) – – – 3(3) 31(40)

Mr T Atherton i 8(8) 2(2) – – – 3(3) 34(40)

Mr A Fry ii 0(4) 0(1) – – 0(1) – –

Mr M Wilks iii 7(8) 2(2) – – – 2(3) 37(40)

Mr S Alexander iv 8(8) 2(2) 4(4) 3(3) 1(1) – –

Mr A Carr-Locke 7(8) 1(2) 4(4) 9(9) 1(1) – –

Ms S Farr v 8(8) 1(2) – 8(9) – 3(3) –

Mr R Macdonald vi 8(8) 2(2) 4(4) 6(6) 1(1) 3(3) –

January 2015 at the Group’s Davidstow site where we are building

our new demineralised whey and GOS plants. The 2012/13 review

also concluded that following changes to the Board’s composition in

May 2013 when Alastair Murray had stepped down from the Board

and Tom Atherton had been appointed Group Finance Director, Tom

had assimilated well into the Board quickly consolidating the

relationships which he had begun to build with the Directors in his

previous role as Director of Financial Control.

It had been intended that the annual appraisal of the Board’s

effectiveness required by provision B6 of the Code for the 2013/14

financial year would be undertaken in the spring of 2014. However, in

light of Anthony Fry’s absence due to ill health and in recognition of

the pivotal role played by the Chairman and the appraisal of his

performance in the overall appraisal of the Board’s effectiveness and

performance, the Board decided to postpone the annual appraisal

of its performance pending Anthony’s return to his duties as

Chairman. Unfortunately Anthony was unable to return to those

duties and in light of that and in order to enable Stephen Alexander

In the last Annual Report we reported on the decision taken to adopt

a hybrid approach to the Board effectiveness review in 2012/13

following the externally facilitated process undertaken in 2011/12

with Rathmullan. In 2012/13 we used a combination of an initially

internal process using questionnaires which was then followed up

with individual interviews with the Directors and the Company

Secretary conducted by IDDAS, a specialist mentoring, coaching

and effectiveness consultancy. IDDAS focused on continuing with

the themes of the previous effectiveness review, in particular

ensuring that adequate progress had been made with the

conclusions drawn from the first externally facilitated review. IDDAS’

review concluded that the Board had made good progress in

ensuring its visibility through more regular site visits and that

relationships amongst the Board continued to work well with any

issues arising being quickly resolved in an open and constructive

manner. The Board visited the Group’s sites at Frome, Somerset

(September 2013) and Chadwell Heath, London (January 2014).

Building on the benefits of greater visibility for the Board within the

business, the Board held its meetings in September 2014 and

i Tom Atherton was appointed to the Corporate Responsibility Committee on

6 March 2015

ii Anthony Fry stepped down from the Board on 17 September 2014

iii Martyn Wilks stepped down from the Board and its Committees on which he

served on 31 March 2015

iv Stephen Alexander stepped down from the Remuneration Committee

on 17 September 2014 and from the Audit Committee on 6 March 2015

following his appointment as Chairman of the Board and was appointed

Chairman of the Nomination Committee on 6 March 2015

v Sue Farr was appointed Chairman of the Corporate Responsibility

Committee on 3 November 2014 and as a member of the Audit and

Nomination Committees on 6 March 2015

vi Richard Macdonald was appointed Chairman of the Remuneration

Committee on 3 November 2014

Information and Support: The Company Secretary advises the

Chairman and the Board on all governance matters and ensures

Board procedures are followed and applicable rules and regulations

complied with. He ensures that the Board is supplied in a timely

manner with information in a form and of a quality which enables the

Board to discharge its duties. The Board, the Committees and all

Directors have access to the advice and services of the Company

Secretary. He provides the Board with regular reports on

governance issues. Procedures exist for Directors to seek

independent professional advice at the Company’s expense where

required.

Effectiveness: Normally the Board has eight scheduled meetings

in its annual work plan. It holds additional meetings on an ad hoc

basis as and when required. During the year the Board held a

number of meetings associated with the sale of the Dairies business

in addition to those scheduled in its annual work plan. It is inherent in

the nature of large corporate transactions that the Board is called

upon to meet more frequently than normal, often at short or relatively

short notice, as it is required to deal with fast developing issues.

Accordingly, although all of the Directors made every effort to attend

meetings which were required in addition to those scheduled in the

Board’s annual work plan, it was not always possible for them all to

accommodate all of those additional meetings. Where they were

unable to attend, they ensured that their input was given to the

Chairman in advance. Details of the Board and Committee meetings

held during the 2014/15 year and Directors’ attendance at those

meetings is set out in the table below.


time to establish himself in the role of Chairman, it was decided that

the next review of the Board’s effectiveness should be conducted

later in 2015.

The decision has been taken to use an external facilitator to help the

Board and Stephen, as the new Chairman, to conduct its next

review. The Chairman and the Company Secretary are conducting a

selection exercise to identify a range of possible organisations and

approaches for the effectiveness review. Following a shortlisting

process the Board will appoint an appropriate external facilitator. We

will report on the outcome of the review in full in the next Annual

Report and will post a summary report on the Company’s website in

the interim.

The performance of Executive Directors in the context of their

management and operational responsibilities was appraised in the

normal way. As is the case with all management grade employees,

Executive Directors participate in the Group’s performance and

development review process. Under that process, the Chairman

appraises the performance of the Chief Executive and the Chief

Executive appraises the performance of the Group Finance Director.

The outcome of reviews of performance of both Executive Directors

is scrutinised by the Remuneration Committee. The outcome of the

performance review of Executive Directors is set out in the Directors’

Remuneration Report at page 52.

Induction and development: the Company Secretary ensures

that Directors undergo a comprehensive induction programme on

appointment. In addition to equipping Directors with sufficiently

detailed knowledge of the operations of the Group’s business

necessary to enable them effectively to carry out their duties, the

induction programme is tailored to their experience, background and

particular areas of focus.

Conflicts of interest: The Companies Act 2006 places a duty on

each Director to avoid a situation in which he or she has or can have

a direct or indirect interest which conflicts or may conflict with the

interests of the Company. That duty is in addition to the obligation

owed by Directors to the Company to disclose to the Board any

transaction or arrangement which gives rise or may give rise to a

conflict of interest under consideration by the Company. Procedures

are in place for Directors to disclose conflicts or potential conflicts of

interest. The Company’s Articles of Association (‘Articles’) authorise

the Directors, where appropriate, to authorise conflicts or possible

conflicts of interest between Directors and the Company. Non-

executive Directors’ letters of appointment require Non-executives to

obtain the prior approval of the Board to appointments external to

the Company where those appointments might affect the time they

are able to devote to their role. That requirement assists the Board to

ensure no conflict of interest may result from such appointments.

When considering conflicts or potential conflicts of interest, the

conflicted or potentially conflicted Director is excluded from

participation in the Board’s consideration of the conflict or potential

conflict situation. From 2014 onwards we adopted a more formalised

process where at the Board’s April meeting, as part of the year-end

sign off process when Directors approve their emoluments

statements, they confirm in writing that they had no present or

anticipated conflicts of interest. That process was most recently

repeated at the Board’s April 2015 meeting. No Director had a

material interest in any significant contract with the Company or any

of its subsidiaries during the year.

Appointment and re-election: The Articles provide that the

Directors or the members, by ordinary resolution, may appoint a

Director either to fill a vacancy or as an additional director. A Director

appointed by the Directors shall retire at the next AGM following

appointment and shall be eligible for election by the members. The

Articles require all Directors to be elected annually. All Directors will

stand for re-election at the Company’s 2015 Annual General Meeting

(‘AGM’). Having regard to the roles performed by each of the

Directors, the individual input and contribution they make and their

individual expertise and experience, the Board is satisfied that each

candidate’s performance justifies nomination for re-election by

shareholders. Service agreements of Executive Directors and a

template letter of appointment of Non-executive Directors are

published on the Company’s website and are available for inspection

by any person at the Company’s registered office during normal

office hours and will also be available at the 2015 AGM for 15

minutes before and throughout the meeting.

Dialogue with shareholders

The Board believes in the importance of an on-going relationship with

its shareholders. It fully supports the principles encouraging dialogue

between companies and their shareholders in the Code and the UK

Stewardship Code. The Chief Executive and Group Finance Director

have primary responsibility for investor relations. They are supported

by the Group’s Investor Relations team. Amongst other matters,

they organise presentations for analysts and institutional investors

and hold meetings with key institutional shareholders to discuss

strategy, financial performance and investment activities immediately

after the Interim and Preliminary Results Announcements. Slide

presentations made to institutional shareholders are made available

on the Company’s website along with annual and interim reports,

interim management statements, trading updates and company

announcements. Announcements are made as appropriate and

required through a Regulatory Information Service.

All the Non-executive Directors, and, in particular, the Chairman and

Senior Independent Director, are available to meet with

shareholders. Feedback from meetings with shareholders is

provided to the Board to ensure that all Directors have a balanced

understanding of the issues and concerns of shareholders. The

Board receives feedback from the Chief Executive and the Group

Finance Director on their meetings with shareholders, periodic

reports on investor relations and independent feedback from the

Company’s brokers on the views of major shareholders. During the

year the Chairman and the Remuneration Committee Chairman held

meetings with key investors to discuss, amongst other matters, the

Transformational Share Award for the Chief Executive which was

approved by shareholders in General Meeting in December 2014.

The notice of each AGM together with other related papers is

dispatched to shareholders at least 20 working days before the

meeting. Ordinarily all Directors attend the AGM and are available to

answer shareholder questions before, during and after the meeting.

The Chairman of the Board provides the meeting with an update on

the progress and performance of the Group before the formal

business of each AGM is addressed and a resolution is proposed

relating to the Annual Report and Accounts. Details of the proxy

voting on each resolution are announced at the AGM including the

level of votes for and against resolutions and abstentions, and are

posted on the Company’s website following the conclusion of the

meeting. At the last AGM, consistent with corporate governance

best practice, voting was conducted on a poll and the result was

published on the Company’s website after the meeting. Voting will

again be conducted on a poll at this year’s AGM.

Risk management and internal control

The Board determines the nature and extent of the significant risks it

is willing to take in achieving its strategic objectives. It has overall

responsibility for the Group’s system of internal control and for

reviewing its effectiveness in which task it is assisted by the Audit

Committee and the Group Internal Audit function. It has delegated



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responsibility for management of day-to-day operational risks to the

Management Board and responsibility for the detailed review of

internal control to the Audit Committee. It has established a sound

system of risk management and internal control, the key

components of which are set out below. Group Internal Audit

supports the Board and Audit Committee in reviewing the

effectiveness of the system of internal control. Through periodic

reviews during the year, the Board has satisfied itself that its systems

accord with the FRC’s Guidance on Internal Control (the ‘Turnbull

Guidance’) and that satisfactory internal control procedures and

systems have been in place throughout the year in compliance with

the requirements of the Code. A rolling audit programme conducted

by Group Internal Audit across the Group forms a key facet of the

Group’s systems of internal control. The Head of Group Internal

Audit reports independently to the chairman of the Audit Committee

on assurance matters. It is not possible entirely to eliminate risk;

accordingly, although the systems are designed to manage risks

they cannot provide absolute assurance against material

misstatement or loss. They provide reasonable assurance that

potential issues can be identified promptly and remedied

appropriately. The key components of the risk management and

internal control systems include:

Reservation to the Board of control of, amongst other matters, all

significant strategic, financial and organisational risks

A management structure which includes clear lines of

responsibility and documented delegations of authority with

appropriate policies, levels and rules for, amongst other matters,

incurring capital expenditure or divesting of the Group’s assets

The operation of comprehensive financial and strategic planning,

forecasting and review processes

Exercise of oversight by the Audit Committee, with input from the

Head of Group Internal Audit, over the Group’s control processes

designed to ensure the integrity of internal and external financial

reporting

The preparation of monthly management accounts packs for the

business, including KPI dashboards for each constituent part of

the Group’s business, trading results, balance sheet and cash flow

information with comparison against prior year and budget, all of

which are reviewed by the Management Board and the Board

Monthly scrutiny of performance against budget (including

analysis of key trends, variances and key risks and plans for

mitigation as well as the continued appropriateness of those risks)

in meetings known internally as Accounts Reviews where each

key constituent part of the Group and key departments report

performance year-to-date and forecast against budget to a panel

comprising the Management Board and other senior executives

Formal documented financial controls and procedures including

specific procedures for treasury transactions and the approval of

significant contracts

Quarterly completion by each key constituent part of the Group of

a self-assessment controls questionnaire that requires the

approval of business unit management

Preparation and refreshment of risk registers which are reviewed

by senior management, the Management Board and the Board

with the assignment of individual responsibility for the ownership

and mitigation of significant risks to members of the Management

Board and independent assurance over the appropriate

implementation and operation of mitigating activities provided by

Group Internal Audit

Review by the Audit Committee of the Group’s risk register

processes

Review and approval of the audit plan for the Group’s Internal

Audit function together with progress against and revision of the

plan as appropriate, throughout the year

Receipt by the Audit Committee and the Management Board of all

Group Internal Audit reports detailing audit issues noted,

corrective action plans and progress against those plans

The operation of an integrated business planning process with

formal procedures for highlighting on a monthly cycle financial

performance and risks to budgetary delivery together with

associated opportunities to counteract or mitigate those risks to

performance

Fair balanced and understandable: Provision C.1 of the Code

requires the Directors to present a fair, balanced and understandable

assessment of the Company’s position and prospects. When the

provision was first introduced to the Code, the Audit Committee

adopted a detailed process to enable the Board to report against

this principle of the Code. The resultant more structured approach

(see table below) to the preparation of the Report and Accounts has

been repeated in the production of this Report and Accounts which

the Board formally signed off at its meeting in May 2015.

January/February/March April May

Initial content

production

Prepare content not

dependent on year end

results, e.g.: business

model, strategy,

corporate governance

sections.

Project Manager (‘PM’)

considers whether

content collated is itself

and collectively fair

balanced and

understandable (‘FBU’):

review and amend.

Identify material events/

performance issues

that will need to be

reported

Agree key messages

Start completing and

collating performance

related content, e.g.

remuneration report.

Consider new

regulations and

consistency with key

messages and KPIs.

PM considers whether

content collated is itself

and collectively FBU:

review and amend

Review and sign off

Confirmation from

contributors as to

completeness of input.

Appropriate review of

full content, for

consistency,

completeness and

messaging: review and

amend.

‘Sign-off’ by section

owners.

section owners to agree

that whole Annual

Report and Accounts

(‘ARA’) is FBU.

off from section owners

to the Board.

Formal sign off

Consider level of

assurance obtained

over non-financial

information in the ARA.

Where applicable Audit

Committee to formally

report to the Board on

how it has satisfied itself

that ARA is FBU.

Board to minute

consideration of FBU

with Board paper

showing the process

and results.

The Board’s assessment of the fair, balanced and understandable

nature of the Annual Report and Accounts is further assisted by,

amongst other matters, the following:

The Annual Report and Accounts is drafted by senior management

with overall coordination by the Company Secretary & General

Counsel.

An internal verification process is undertaken by the Internal Auditors

to ensure factual accuracy.

Comprehensive reviews of the draft Annual Report and Accounts

are undertaken by Management Board members, and in relation to

certain sections by the Company’s external lawyers, by the External

Auditor and other advisors.

The drafts of each relevant section are reviewed as they are

prepared through an iterative drafting process by the Chairmen of

appropriate Committees of the Board and the final draft is reviewed

by those Committees prior to consideration by the Board.

At its May 2015 meeting, the Board reviewed and was satisfied that

the Annual Report and Accounts for financial year 2014/15, taken as

a whole, is fair, balanced and understandable and the Board

believes that the information contained therein provides the

information necessary for shareholders to assess the Company’s

and Group’s performance, business model and strategy.



Going Concern Review: the Committee received management’s

report on; procedures undertaken to support the going concern

statement; the level of the Group’s borrowing facilities and

forthcoming deadlines for repayment or renegotiation of those

facilities; the amount of headroom over borrowing facilities and the

adequacy of committed facilities to meet cash requirements in the

2015/16 financial year; budgeted net debt and EBITDA and

headroom related to banking covenants. The Committee was

satisfied that the proposed going concern statement to be made

in the 2015 Annual Report and accounts is appropriate.

Accounting treatment for the Dairies operations: for both

the interim financial statements and the full year Group financial

statements, the Committee reviewed with management and EY

the accounting treatment to be adopted for the Dairies operations

at both 30 September 2014 and 31 March 2015 in light of the

conditional sale of the Dairies operations to Müller. In considering

whether the Dairies business should be accounted for as held for

sale under the requirements of IFRS 5 ‘Non Current assets held

for sale and discontinued operations’, the Committee considered

whether the transaction was highly probable given the status of

the regulatory approval process and ongoing advice obtained by

the Board from legal advisers. The Committee confirmed that the

accounting conclusion that Dairies should not be presented as

held for sale in the 2015 Group financial statement should be

disclosed as a key area of judgement.

Annual impairment review: the Committee reviewed a

management report supporting the conclusion that no impairment

of goodwill or property, plant and equipment should be

recognised at 31 March 2015 albeit a reasonably possible change

in assumptions might lead to an impairment in the Dairies cash

generating unit (‘CGU’). Due to the low margins and challenging

market conditions associated with the Dairies business, the

carrying value of property plant and equipment in the Dairies CGU

was reviewed for impairment. The Committee reviewed with

management and EY key assumptions used including, but not

limited to, discount rates, cash inflows from forecast property

disposals, profit margins, the potential timing and amount of

disposable proceeds and the allocation of corporate costs. In light

of the conditional sale of the Dairies operations, the methodology

applied in calculating an appropriate value in use for the Dairies

CGU was reviewed and the Committee agreed that this should be

disclosed as a key area of judgement applied in the 2015 Group


Revenue recognition and promotional activity: given the

judgemental nature of certain promotional accruals, the

Committee routinely reviews the level of promotional accruals at

the half year and the full year. It considers the results of the interim

review and the audit conducted by EY which assessed the

effectiveness of redemption rates used and the effectiveness of

controls. In light of current regulatory focus on promotional activity,

the Committee recommended to the Board that it conduct a

review of the Group’s commercial arrangements with key retail

customers. The Board’s review concluded there were no changes

required to the accounting approach used and that appropriate

controls were in place.

Exceptional items: the Committee challenged the

appropriateness of the classification of items as exceptional and

compliance with the Group’s accounting policies when dealing

with exceptional items. The Committee was satisfied that

exceptional items had been appropriately classified, treated

consistently and discussions were transparent.

Capitalisation of assets: given the scale of the investment in the

new demineralised whey and GOS facilities at Davidstow, the

Committee considered Internal Audit’s findings from their review

performed in November 2014 of financial controls for actual

The Committee has clearly defined accountabilities which are set

out in its terms of reference and has a work programme which

encompasses regular, routine activity, planned proactive activity and

when necessary, reactive activity. Details of the Committee’s work

programme undertaken during the year are set out in the Report

below. The Code encourages audit committees to report not just on

the areas of work they have undertaken, but also on the significant

issues they have considered during the year. Following the period of

significant change and major internal restructuring undertaken in

2013/14, the Committee continued to focus on the integrity of

financial reporting following the changes undergone by the Group’s

finance team and the appointment of Tom Atherton as Group

Finance Director in 2013/14. Change has been a consistent theme

during the year with significant focus on the delivery of the Group’s

strategy to build market leading positions in branded and added

value markets, part of the implementation of which is the sale of the

Group’s Dairies business which is subject to competition clearance

and its development of its demineralised whey and GOS plants.

During the year, the Committee has focused on ensuring the

continued integrity of the Group’s financial management and

reporting systems, its policies and its internal controls against this

backdrop of change in order to ensure maintenance of the control

environment.

Significant matters relating to the 2015 Group financial

statements:

The Committee discussed with management the key judgements

applied in the Group’s financial statements and the impact of

significant accounting items arising in the year. The main items

discussed were:

Being entirely independent of

management and enjoying a free

ranging remit on behalf of the

Board, the Audit Committee plays a

crucial role in the governance of

Dairy Crest. It provides oversight of

the essential checks, balances and

controls which are relied upon by

our shareholders in order to have

confidence that their interests are

appropriately safeguarded. The Committee provides assurance

over the integrity of the Group’s financial reporting, including the

interim and full year accounts; it enables shareholders and other

stakeholders to have confidence that appropriate scrutiny has

been applied to the Company’s and the Group’s accounting

policies and that key accounting issues have been approached in

an appropriate manner and a proper assessment of the

Company as a going concern has been undertaken by

management and the Board. The Committee scrutinises

management’s approach to judgmental issues and challenges

management to ensure that judgements are approached in an

unbiased manner with proper consideration of relevant facts.

The Committee’s work combined with assurance derived from

internal and external auditors helps the Group to operate within a

framework of suitable controls enabling the risks necessary for

the Group’s growth and for the enhancement of shareholder

value to be properly controlled and mitigated. The Board is

ultimately responsible for the identification, assessment and

management of risk and the Committee assists it in the oversight

of risk in addition to its core duties related to financial oversight

and reporting.

Audit Committee report


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external auditor and the Company’s process for monitoring

compliance with laws and external regulations. Final responsibility for

financial reporting, compliance with laws and regulations and risk

management rests with the Board to which the Committee regularly

reports back.

Meetings: the Committee’s core work is driven by a structured

programme of activity settled at the start of the year between the

Committee Chairman, management and EY. As well as its core

work, the Committee undertakes additional work in response to the

evolving audit landscape. The following non-exhaustive list provides

highlights of the Committee’s core and additional work undertaken

during the year:

12 May 2014 Received and considered EY’s 2014 Audit Results Report

Received management’s review of changes to relevant accounting standards and policies affecting the draft Report and Accounts for the year ending 31 March 2014 (including the legislative requirements for the inclusion in the Report and Accounts of a strategic report and the Group’s approach to the preparation of the strategic report as well as the fair balanced and understandable requirement under the Code)

Reviewed its own performance and that of EY along with EY’s objectivity and the independence and effectiveness of EY’s processes, and recommended to the Board EY’s reappointment as the external auditor

Received Group Internal Audit’s updates on pre-existing whistleblowing notifications and any new notifications as well as its report on financial and operational controls audits and its progress against audit plan. Approved Group Internal Audit’s work plan for the next financial year

15 September 2014

Received Group Internal Audit’s report on financial and operational controls audits, pre-existing whistleblowing notifications and any new notifications

Considered EY’s 2014/15 Audit Planning Report

Received a report on the impact of changes to UK GAAP and the introduction of new financial reporting standards on the Company

Received an update on and reviewed the Group’s IT security and cyber risks together with appropriate controls and recommended changes to policy

Reviewed the outcome of the Financial Reporting Council’s Audit Quality Inspections, including in particular, the outcome of the Audit Quality Inspection of EY

3 November 2014

Received Group Internal Audit’s report on financial and operational controls audits, pre-existing whistleblowing notifications and any new notifications

Received management’s analytical review of the results for the period ended 30 September 2014 and reviewed and approved for recommendation to the Board draft Interim Accounts for that period

Received and considered EY’s Interim Review Report for the period ended 30 September 2014

6 March 2015 Received a report on and reviewed the Group’s accounting for its Dairies business at 31 March 2015

Received and considered a report on the conduct of the annual impairment review of the Group’s operations, including, in particular, impairment testing of the Dairies assets

Received and considered EY’s Audit Update Report

Received Group Internal Audit’s update on audits conducted in the period and progress with its audit plan, as well as whistleblowing notifications received during the period and an update on investigations into previous notifications

expenditure against approved capital expenditure, including

compliance with the Group’s purchasing policies and procedures.

Fair balanced and understandable: at its meeting on 11 May

2015, the Committee reviewed the process which had been

followed for the preparation of the Annual Report and Accounts

(see page 39) together with the content of the draft Annual Report

and Accounts and considered whether the Code requirements for

the presentation of a fair balanced and understandable Annual

Report and Accounts had been met. The Committee challenged

management over the appropriateness of the degree of

confidence with which completion of the sale of the Dairies

business was presented in the Strategic report section of the

Annual Report considering the accounting treatment applied to

the sale, which is conditional on competition clearance, in the draft

Accounts. The Committee provided comment for consideration by

the Board, subject to which, it considered the Annual Report and

Accounts to be fair, balanced and understandable.

In light of the considerable focus which is rightly placed on the

objectivity and independence of the external auditor, we shall report

more fully later in this Report on the Committee’s approach to

external audit tendering. Finally, as Stephen Alexander replaced

Anthony Fry during the year as Chairman of the Board, in order to

ensure continued compliance with the Code, Stephen stood down

from the Committee. In turn, Sue Farr joined the Committee and I

would like to take this opportunity formally to welcome her to the

Committee.

Andrew Carr-Locke Chairman of the Audit Committee

20 May 2015

Membership: details of the members of the Committee at the date

of this Report together with details of attendance at meetings are set

out at page 37. Changes to membership of the committee during the

year are set out in the footnotes to the table on page 37. The Board

considers that the Chairman of the Committee has recent and

relevant financial experience for the purposes of the Code.

Invitations to attend meetings: a standing invitation has been

made by the Committee to the Chairman of the Board, the Chief

Executive and the Group Finance Director to attend the Committee’s

meetings. The Group Reporting Controller, Group Financial

Controller, Head of Group Internal Audit and representatives of EY

attend all meetings at the invitation of the Committee. During the

year the External and Internal Auditors attended all meetings and

also met privately with the Committee.

Role and responsibilities: consistent with the FRC’s “Guidance

on Audit Committees” the Committee’s role and responsibilities are

concerned with financial reporting, narrative reporting,

whistleblowing and fraud, internal controls and risk management

systems, internal audit and external audit. The Committee’s

scheduled activities are planned in accordance with its terms of

reference, which have been approved by the Board.

Terms of reference: the Committee has documented terms of

reference which are approved by the Board. They are reviewed at

least annually and during the year they were last reviewed at the

Committee’s meeting in March 2015. Its terms of reference comply

with the Code and can be found on the Group’s website.

Objectives: the Board has delegated authority to the Committee to

oversee and review the Group’s financial reporting process, system

of internal control and management of business risks, the internal

audit process, the external audit process and relationship with the



Details of the non-audit work undertaken by EY during the year,

which included acting as reporting accountant as part of the Dairies

sale transaction and research and development related tax work,

are set out at Note 2 to the Accounts at page 86. The Committee

was satisfied that the overall levels of audit related and non-audit

fees were not material relative to the income of the external auditor

firm as a whole. It was satisfied that the objectivity and

independence of the external auditor was maintained throughout

the year.

External auditor appointment:

EY has been the Company and Group’s external auditor since the

Company floated in 1996. The external audit appointment has not

been tendered competitively since EY’s appointment. During the

prior year and the year covered by this Annual Report, the

Committee has closely monitored regulatory developments

concerning external audit tendering and has assessed the

implications of the transitional arrangements for the Competition and

Markets Authority’s order concerning audit contract tender (‘Order’)

and the EU audit regulation (‘Regulation’), which comes into force in

June 2016.

In light of EY’s long association with the Company, EY and the

Committee have agreed that EY will not participate in the next tender

exercise for the Company’s external audit engagement. During the

2013/14 financial year, the Company introduced a policy requiring

that the external audit engagement is tendered each 10 years, the

first of which tendering exercises must be undertaken not later than

the end of 2019. In so doing, the Committee believes it will comply

with the provisions of the Order, the Regulation and the Code.

During the year the Committee decided that it would plan to

undertake a tender process timed to enable the appointment of a

new external auditor in readiness for the start of the 2017/18 financial

year on 1 April 2017. The Committee is keeping its approach to the

external auditor appointment and continued regulatory changes

under review. It currently expects to make a final decision on an

audit tender by the end of 2015, by which time the Department for

Business Innovation and Skills will have published the conclusion of

its consultation on the effects of the Regulation.

The Committee monitors the performance of the external auditor

throughout the year and formally concludes the assessment of its

performance every May and makes a corresponding

recommendation on the appointment of EY for the forthcoming

financial year to the Board. Shareholders formally appoint the

external auditor at the AGM in July. In light of the assessments and

review undertaken last May, the Board endorsed the Committee’s

recommendation which was approved by shareholders in July 2014.

At its meeting in May 2015, the Audit Committee considered the

appropriateness of the re-appointment of EY as the Group’s external

auditor for the 2015/16 year. In doing so it took account of the

Committee’s review of the external auditor’s independence and

objectivity, the ratio of audit to non-audit fees and the effectiveness

of the audit process together with other relevant review processes

conducted throughout the year. The Committee was satisfied that it

should recommend to the Board the re-appointment of EY as the

Company’s and Group’s external auditor.

External auditor objectivity and independence: the objectivity

and independence of the external auditor is critical to the integrity of

the audit. During the year the Committee reviewed the external

auditor’s own policies and procedures for safeguarding its objectivity

and independence. There are no contractual restrictions on the

Company with regard to the external auditor’s appointment. Audit

engagement partner rotation requirements have been routinely

observed. The audit engagement partner provided her annual

representation to the Committee as to the external auditor’s

independence and confirmed that EY’s reward and remuneration

structure includes no incentives for her to cross sell non-audit

services to audit clients.

The Committee’s assessment of EY’s independence is underpinned

by the Group’s policy on the use of EY for the provision of non-audit

services. The policy contains a presumption against the use of the

external auditor for non-audit services. EY may only be engaged for

the provision of non-audit services in contravention of that

presumption where those services are expressly permitted under

the policy and where there is a demonstrable efficiency, audit

enhancement or cost benefit resulting from the engagement of the

external auditor. Furthermore, before it may be engaged for the

provision of such non-audit services, alternative providers must have

been considered and discounted.

Services which the external auditor is prohibited from providing to

the Group include, amongst others:

Bookkeeping services and preparation of financial information

The design, supply or implementation of financial information

systems

Appraisal or valuation services

Internal audit services

Actuarial services

Fees paid to EY during the year are set out in the table below,

together with prior year comparisons:

2014/15£m

2013/14£m

Total audit fees 0.4 0.4

Non-audit fees

Taxation services 0.1 0.1

Other non-audit services 0.5 –

Total non-audit fees 0.6 0.1

Total Fees 1.0 0.5

6 March 2015 continued

Received and considered an update on the regulatory environment surrounding audit tenders and changes to that environment and considered a proposed approach for adoption by the Group to tendering the external audit engagement

Received an update on and reviewed the Group’s IT security and cyber risk

Reviewed the Committee’s performance during the year against its work plan satisfying itself that it had achieved its work plan as well as a number of additional matters which had arisen during the year and that it had satisfied its remit under its terms of reference, which it also reviewed and decided that no changes were required to them


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The Committee is responsible for overseeing the selection and

appointment of Directors and making its recommendations to the

Board. In conjunction with the Chairman it also evaluates the

commitments of individual Directors and ensures that the

membership of the Board and its principal committees are refreshed

periodically. The Board believes that it is in the best interests of the

Company that Executive Directors take up opportunities to act as

Non-executive Directors in other appropriate companies. Executive

Directors are permitted to serve in a non-executive capacity on the

board of one other listed company and to retain any fees received.

Non-executive Directors may serve as directors, executive or

otherwise, on the boards of other companies or appropriate

organisations. Non-executive Directors’ letters of appointment

require them to seek prior approval from the Board before accepting

any additional commitment that might affect the time that they are

able to devote to their role as a Non-executive Director of the

Company. The Board has the opportunity to satisfy itself that

Non-executive Directors’ other commitments allow them to devote

adequate time to their commitments to the Company. The Board

approved all new appointments of Directors during the year and is

satisfied that all Directors continue to have sufficient time to devote

themselves properly to their duties for the Company.

The Committee has not been required during the year to assist the

Board with the recruitment of a Director. Were it to be so required, it

would ensure that the recruitment exercise was conducted against a

documented brief setting out the requirements of the role and the

skills and experience required of the person to fill it. In the past, the

Company has engaged the services of external search

consultancies and it is anticipated, in the ordinary course, that it

would continue to do so in the future. Were it not to do so, open

advertising would be used as an alternative. None of the Non-

I present to shareholders the report on the work of the Nomination

Committee during the 2014/15 financial year. Details of the

membership of the Committee and the attendance of members at

Committee meetings during the year are set out on page 37. For

the majority of the year, in Anthony Fry’s absence, I chaired the

Committee. Stephen Alexander was appointed as Chairman of

the Committee in March 2015. As I chaired the Committee during

most of the year on which we are reporting, I am reporting on the

Committee’s work rather than Stephen.

Nomination Committee reportexecutive Directors, or the Chairman, who was independent on

appointment, has yet served six years in office. Andrew Carr-Locke

is the longest serving of the independent Non-executive Directors. In

August 2015 he will have served six years on the Board.

During the year the Committee’s main focus was on the potential

need for succession to the position of Chairman of the Board,

should, as unfortunately proved to be the case, Anthony be unable

to return to the role. The Committee also focused on any other

additional consequential changes required to be made to the

membership of the Board and its Committees. In recruiting Stephen

Alexander to the Board in 2010/11 careful consideration had been

given to future succession planning for the Chairman’s role. Keeping

in mind the critical juncture in the development of the Group’s

business at which we found ourselves, it was clearly appropriate

given Stephen’s experience and suitability for the role that the

Committee recommended to the Board his appointment as

Chairman.

In order to ensure continued compliance with the Code and that the

Board’s Committees could continue to function properly, a number

of changes were also required to the Board’s Committees. During

the year following his appointment as Chairman of the Board,

Stephen stood down from the Audit Committee and as Chairman of

the Remuneration Committee. I was appointed Chairman of the

Remuneration Committee and Sue Farr joined the Audit Committee

and Nomination Committees and was appointed Chairman of the

Corporate Responsibility Committee from which role I stood down,

although I remain a member of that Committee. Finally, the

Committee recommended to the Board that Stephen Alexander

become Chairman of the Nomination Committee, which

recommendation was endorsed by the Board – although in the event

that the Nomination Committee is in the future required to deal with

the appointment of Stephen’s successor, in compliance with the

Code, I would lead that process as Senior Independent Director. The

Committee and the Board have considered whether, in light of

Martyn Wilks departure from the Board, an additional Executive

Director is required to be appointed to the Board. The Committee’s

recommendation, accepted and endorsed by the Board, was that

for the time being, given the changes which the Company is

undergoing, no additional appointment should be made although it

will be keeping that recommendation under review.

The Group has not adopted targets for female representation

amongst the Directors. It interprets diversity in its widest sense and

aims to achieve the best possible leadership for the Group by

ensuring an appropriate mix of skills, backgrounds, gender,

experience and knowledge amongst its Directors, senior managers

and other employees. The Committee considers that first and

foremost, appointments must be made based on an objective

assessment of who is the best person to fill a role, with candidates

drawn from a diverse range of backgrounds. The Group will continue

to operate policies giving equal opportunities to all, irrespective of

age, gender, marital status, disability, nationality, colour, ethnic

origin, sexual orientation or religious affiliation.

Richard Macdonald Senior Independent Director

20 May 2015

Sector experience Independence

Female 17%

Finance33%

Non-independent 33%

Independent 67%

Communications/Marketing 17%

Agriculture17%

FMCG/Manufacturing33%

8+ years tenure 17%

4-7 years tenure 66%

0-3 yearstenure 17%

Male 83%

Length of tenure Board gender


Management Board

The Chief Executive chairs the Management Board which comprises

the other Executive Directors and senior members of the Group’s

executive team. Details of the members of the Management Board

can be found at pages 32 to 34. The Management Board is

responsible, amongst other matters, for implementing the Group’s

strategic direction and monitoring the performance of the business

and its control procedures on a day-to-day basis, as well as the

day-to-day operations of the Group’s business, its performance

against forecasts and budgets and profitability. The Management

Board normally meets weekly.

Information included in the Directors’ report

Certain information fulfilling the requirements of the Corporate

Governance Report can be found in the Directors’ Report at pages

63 to 65 under the headings ‘Substantial shareholdings’, ‘Rights and

obligations attaching to shares’, ‘Articles of association’ and

‘Purchase of own shares’ and is incorporated into this Corporate

Governance Report by reference.

By order of the Board

Robin Miller Company Secretary & General Counsel

20 May 2015


The Committee oversees the Group’s corporate responsibility

programme and ensures that key social, ethical and environmental

issues are assessed and prioritised including reviewing the

Company’s 40 corporate responsibility pledges. In addition to me as

Chairman, the Committee comprises Richard Macdonald, Mark

Allen, Tom Atherton, Robin Miller, Robert Willock and Adam

Braithwaite.

During the year the Group continued to benefit from working in

collaboration with other businesses to deliver larger scale benefits to

society. Examples have included our continued support of the IGD’s

Feeding Britain’s Future initiative through which employees have

helped over 140 young people find employment since 2013.

Through our community partnership with Marks & Spencer we have

also been able to offer over 80 young people 80 hours of work

experience. Aware that without dairy farmers we would not have a

business we are also proud of the work we have done through the

Prince’s Countryside Fund and more specifically, the Prince’s Dairy

Initiative, a programme that helps the most vulnerable dairy farms

become more economically and environmentally sustainable.

Overall the Committee views corporate responsibility as an

opportunity to improve and add further value to the business.

Accordingly, good corporate responsibility is in the interests of all of

Dairy Crest’s stakeholders. We believe that the Group’s approach

helps to spark creative, innovative ideas which contribute to the

business’ better understanding of its consumers and will lead to

greater success.

Sue Farr Chairman of the Corporate Responsibility Committee

20 May 2015

I am delighted to present to

shareholders my first report

as Chairman of the Corporate

Responsibility Committee which

can be found on pages 23 to 27.

As referred to in the report of the

Nomination Committee, Richard

Macdonald chaired the Committee

during the year until November. I

thank Richard for his leadership

of the Committee during which time the Company’s corporate

responsibility programme has gone from strength to strength as

demonstrated by the Group’s continued success in the reduction

of accidents in the workplace, its reduced water usage and the

launch of healthier innovative products. It was with great pride

that we reported last year that the Group had achieved four and

a half stars in the 2014 BITC corporate responsibility audit, the

highest rating of any participating member company, which built

on the achievement of a BITC Platinum Big Tick in 2013. It is

with equal pride that I am able to report to you that in the 2015

BITC corporate responsibility audit we have achieved the highest

possible rating of five stars. I was also delighted that in 2014 Dairy

Crest was the recipient of the prestigious IGD President’s Cup, an

award that recognises, in part, the work that the Company has

made to helping the organisation achieve its societal objectives.

Report of the Corporate Responsibility Committee


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The Dairies transaction

2014/15 has been a notable year for Dairy Crest. On 6 November we

announced that we have agreed to sell the assets and business of our

Dairies operations to Müller. A sale is conditional on approval from the

relevant competition authorities and the process to obtain approval is

on track. After completion of a sale, Dairy Crest’s focus will be on its

profitable, predominantly branded, cheese and spreads operations. It

will also grow its revenue and profits by continuing to develop

whey-based products, specifically demineralised whey powder and

galacto-oligosaccharide, for the fast growing global infant formula

market. A sale of the Dairies operations will be a transformational and

a hugely positive transaction for the Company, our shareholders and

the sector.

In light of the challenges that lay ahead for Dairy Crest over this critical

period for the business, the Committee determined that the retention

of Mark Allen, given his unique knowledge of the Group’s business

and in-depth knowledge of the sector in which it operates and his

relationships with the Company’s key stakeholders, is paramount over

the coming three years. Mark has been the Company’s Chief

Executive for eight years and with Dairy Crest for 23 years.

Shareholders approved the grant of a one-off Transformational

Incentive Award to the Chief Executive outside the approved Directors’

Remuneration Policy at the extraordinary general meeting held in

December 2014. As a result the award was granted following the EGM

and vests three years from grant in December 2017, subject to the

achievement of stretching performance conditions. Further details of

this award are given in the report under ‘Scheme interests awarded

during the financial year’. We consulted with a number of our key

shareholders prior to the EGM, and I would like to take this

opportunity to thank investors for their input and engagement during

this process, and for their subsequent support at the EGM.

2014/15

The positive transaction for Dairy Crest highlighted above takes

place against a backdrop of challenging trading and economic

DIRECTORS’ REMUNERATION REPORT

conditions for the business this year, which is reflected in our

incentive payouts in relation to 2014/15.

The Dairy Crest annual bonus incorporates stretching short term

financial targets and personal objectives. This year’s bonus

payments reflect a challenging year where bonus targets for profit

and net debt were not met, resulting in lower payments of 18.75% of

salary for Mark Allen, 15.63% for Martyn Wilks and 18.75% for Tom

Atherton.

Awards under the Long Term Incentive Share Plan (‘LTISP’) 2012

had a three-year performance period to March 2015. Against the

TSR performance measure (60% of the award), the Company

achieved 34.7% growth, however, the Company did not achieve the

minimum Adjusted EPS target threshold (40% of the award). This

resulted in 20.8% of awards vesting under this award.

Under the Long Term Alignment Plan (‘LTAP’), our Executives are

measured against a set of strategic Key Performance Indicators

supported by a 3 year performance measure relating to dividend

performance. For the 2014/15 financial year, the LTAP grant will be

69.2% of basic pay for the Executive Directors, which reflects a

consistent performance by Dairy Crest against the backdrop of a

difficult market. As the 2014/15 grant level was determined based on

performance against the scorecard over the previous financial year,

we have provided full details of the outcomes against these

measures in this report. This is contained towards the end of the

report just before ‘Statement of Implementation of policy in the

following financial year’. Grants under the LTAP will vest in two equal

tranches four years and five years after grant, subject to the dividend

and dividend cover maintenance performance condition being met.

Board changes

Martyn Wilks left the Board on the 31 March 2015, and I would like

to take this opportunity to thank Martyn for his contribution

throughout the seven years he was on the Board. Further

information on the termination pay arrangements in place for Martyn

can be found on page 53 of this report.

2015/16

2015/16 is expected to be a challenging year in light of the

transaction and related significant restructuring activity required. As

the timing of the transaction is unclear and dependent on the

relevant competition approvals, the Committee has reviewed the

2015/16 annual bonus performance measures. This is to ensure that

for this year, during this critical period of transition, the targets

appropriately assess performance and recognise the contribution of

our people. As a result of this review, the Committee has determined

that the profit before tax measure will be replaced with an adjusted

operating profit measure, to enable the Committee to assess the

underlying performance of the business over the year, excluding

property disposals and the impact of interest payments over the

period which will be abnormally impacted by the anticipated

transaction. In addition, the net debt measure is to be replaced with

a cashflow measure to provide a more relevant assessment of

performance over the period and the target will be calibrated to

exclude the anticipated cash receipt as a result of the transaction.

Finally, part of the 2015/16 annual bonus will be paid depending on

the successful completion of the transaction. This approach is being

applied to all bonus scheme participants and the Committee

believes that it is important to incentivise and reward employees

appropriately for their part in achieving this deal. However, to ensure

that the greater proportion of the Executive Directors’ bonuses

continue to be based on specific financial measures, this element

will comprise a much lower proportion of the bonus for them

Dear shareholder,

On behalf of the Board, I am

pleased to present the Directors’

Remuneration Report for the

2014/15 financial year.

The Dairy Crest remuneration

policy continues to be based upon

a core set of principles which

support the strategic and financial

ambitions of the Company:

The remuneration package should support a performance

based culture, attract and retain talented personnel and align

executives’ and shareholders’ interests.

The remuneration structure is both uncomplicated and

transparent, and we remain committed to open disclosure.

The measures used for incentive plans reflect the strategic

priorities which the Committee considers critical to the future

success of the Company.

At the 2014 AGM, shareholders approved our Directors’

Remuneration Policy (‘Policy’) with 96% support. A copy of the

Policy is included after this statement for ease of reference. The

full Policy as approved by shareholders is available on our website.

Chairman’s statement


DIRECTORS’ REMUNERATION REPORT CONTINUED

compared with other employees. This change is consistent with the

approved Policy. The maximum bonus potential for Executive

Directors will remain at 100% of salary.

In reviewing our bonus, we have also made a substantive change to

how we will implement the Policy. We have introduced clawback and

malus clauses to our bonus, applying to awards made relating to

2015/16 and future financial years. These will allow both cash and

share bonus awards to be reduced in the three years after the award

is made. This is intended to protect the Company and its

stakeholders against the most serious events, which may only come

to light after a period of time. This does not constitute a change to

Policy.

As referenced in last year’s remuneration report, Tom Atherton’s

promotion to Group Finance Director was at a salary level

significantly below the market rate, but with a clear plan for

enhanced salary adjustments in line with increasing experience and

good performance in the role. I am pleased to confirm that further to

an on-going review of Tom’s performance his salary has been

increased by 15.4% to £300,000 p.a. This reflects our ongoing

intention to move him to a market median positioning as his

experience in role grows. It is therefore anticipated that subject to his

continued strong performance, Tom will receive further appropriate

increases such that his salary positioning is in the market median

range against FTSE 250 CFOs. No salary increase will be awarded

to Mark Allen in 2015 (he last received an increase in his basic salary

in 2011). The Committee intends to conduct a review of Mark’s

salary in January 2016.

This report

Following the high level of support received for our 2013/14

remuneration report, the Committee decided to make minimal

changes to the layout of the report to provide consistency for our

readers. We have included a copy of our full Policy report, which was

approved at the 2014 AGM, but this is not being put to a shareholder

vote this year as we have made no changes to the Policy. Other than

the one-off Transformational Incentive Award previously mentioned,

we have operated fully within the Policy this year.

Approved by the Board and signed on its behalf by

Richard Macdonald Chairman of the Remuneration Committee.

(approved by shareholders at the 2014 AGM)

Directors’ remuneration Policy

We seek to ensure that the remuneration packages contribute to the

delivery of long term shareholder value. This is reflected in the

Company’s annual bonus scheme and long term alignment plan,

which are explained in more details below. The Committee received

shareholder approval of the following Policy at the Annual General

Meeting on 15 July 2014 to cover the period from 1 April 2015 to the

2017 AGM.

Future policy table

The remuneration structure for Executive and Non-executive

Directors (who are paid only fees and receive no additional benefits)

at Dairy Crest, and the underlying principles on which each element

of the package is based are set out below.

Directors’ remuneration policy

How the element

supports our

strategic objectives Operation of the element Maximum opportunity under the element

Performance metrics used, and time

period applicable

Base salary

Reflect assessment

of market practice

based on role and

experience.

Benchmarked against executives with

similar responsibilities in companies of

comparable size and complexity, in

particular the constituent companies of

the FTSE 250 index (excluding financial

services).

Paid in 12 equal monthly instalments

during the year.

Reviewed annually and any changes are

in the ordinary course effective from 1st

July.

Increases will normally be broadly in line with

inflation and the wider employee population.

The Committee retains the flexibility to award

higher base salary increases and to position

salaries in such a way that ensures Dairy Crest

remains competitive in the market, and to take

into account an individual’s personal

performance and experience in the role – as

such the Committee may apply increases over

time as appropriate to achieve alignment with

market levels.

Changes may also be made in the case of a

change in role or responsibility.

Not applicable.


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How the element

supports our



period applicable

Pension

Provide a market

competitive level of

provision with

appropriate flexibility

whilst minimising risk

to the Group.

There is a defined contribution scheme

and/or salary supplement in place. No

further service accrual under final salary

pension scheme from 1 April 2010.

Mark Allen and Tom Atherton receive employer

contributions up to Annual Allowance plus cash

supplements. Total benefit will not exceed 23%

of salary.

Martyn Wilks receives a cash supplement of

23% of salary.

Not applicable.

Benefits

Provide market-

competitive benefits.

Includes company car benefit, life

assurance cover, permanent health

insurance and medical insurance.

Dairy Crest pays the cost of providing the

benefits on a monthly basis, or as

required for one-off events.

The Remuneration Committee reserves

the right to add to or remove these

benefits as required.

All Executives receive a company car/car

allowance and private medical insurance,

commensurate with market levels.

Mark Allen and Tom Atherton receive life

insurance cover of 7 x annual salary.

Martyn Wilks receives life insurance cover of 4 x

annual salary.

Not applicable.

Bonus

Ensure that annual

reward is consistent

with successfully

achieving the short

term financial targets

and strategic

objectives of the

Group.

To deliver an appropriate balance

between long term and short term

reward, any bonus earned over 50% of

annual salary is deferred into shares (see

below). The remainder is paid as cash.

The cash element of the bonus is paid

three months after the end of the financial

year to which it relates.

Current maximum award: 100% of salary.

Target award: 50% of salary.

Threshold award: 0% of salary.

The Remuneration Committee has discretion to

increase the maximum award to 150% of salary

in exceptional circumstances. The Committee is

not aware of any such circumstances and so

does not currently expect to make awards above

the maximum of 100% of salary.

Performance is measured by reference to the

financial year.

Metrics used to determine performance under

the bonus will be based on a mix of financial,

operational and personal measures.

The Committee has the flexibility to vary the

performance measures and weighting of

metrics under this plan.

Deferred bonus

Deliver appropriate

balance between

long term and short

term reward and to

build up Directors’

shareholdings in line

with Policy.

Any bonus over 50% of annual salary is

deferred for three years, conditional on

continued employment until vesting date.

Delivered in shares. Participants will

normally be entitled to an amount, payable

in shares, on vesting equal in value to the

dividends payable on deferred bonus

shares over the deferral period.

Policy maximum award: 50% of salary

(maximum potential deferral).

In the exceptional event the Remuneration

Committee exercises discretion to award a

bonus above 100% of salary, any bonus earned

above 50% of salary would be deferred into

shares.

None. Value growth is achieved only through

change in share price, and dividend

equivalents paid.

Long Term

Alignment Plan

Encourage and

reward continuing

improvement in the

Group’s performance

over the longer term.

Alignment of interest

between participants

and shareholders.

Measures identified

are central to Dairy

Crest’s strategy and

are considered by

Directors in

overseeing the

operation of the

business.

Annual grant of share awards.

Awards will be subject to a phased

vesting requirement, with 50% of the

award vesting in year 4 and 50% in year 5

following grant.

Participants will normally be entitled to an

amount on vesting, paid in shares, equal

in value to the dividends payable on

shares awarded.

The Board may at any time up to and on

vesting reduce the number of shares that

vest, should material misstatement or

misconduct occur.

Maximum award: 90% of salary.

If performance falls below a minimum level

against the scorecard no award will be made.

Achievements over the prior year against a

pre-grant performance scorecard comprising

measures aligned to Dairy Crest’s strategic

priorities.

The Committee has flexibility to amend the

relevant measures, weightings and KPIs which

determine the size of the awards granted. The

weighting of financial KPIs in determining

annual grant levels will be at least 60% of the

scorecard.

Vesting is subject to continued employment.

The level of vesting may be reduced

dependent on a dividend underpin over the

first three years of the vesting period.

An amount of the award proportional to the

percentage decrease in dividend may be

clawed back in the event of a decline of up to

50%. If the decline exceeds 50%, the

Committee will use its discretion to determine

the proportion of the award that shall vest. In

such circumstances not more than 50% of the

award will vest.



How the element

supports our



period applicable

Long Term

Alignment Plan

Continued

Dividend cover must be maintained in a

specific range over the three-year

measurement period. The Remuneration

Committee retains discretion to reduce the

vesting of awards as appropriate should

dividend cover be outside this range. The

dividend cover range will be determined by the

Committee annually, and may be adjusted if

the Committee determines this to be

appropriate.

Shareholding

requirement



and shareholders.

Directors are encouraged to build a

shareholding in the Company. Such

shareholdings exclude unvested options

under the Long Term Incentive Share Plan

and include unvested deferred shares

granted to Executive Directors as part

payment of bonuses and unvested LTAP

awards.

Directors who have not achieved the

minimum shareholding requirement will

be encouraged to retain 50% of any

shares released under the deferred

bonus/LTAP until the required level of

shareholding is reached.

The shareholding requirement for Executive

Directors is 200% of salary.

Not applicable.

Non-executive

Directors’ fees

Remunerates

Non-executive

Directors and

attracts Non-

executive Directors of

suitable calibre.

Benchmarked against Non-executive

Directors with similar responsibilities in

companies of comparable size and

complexity.

The remuneration of the Non-executive

Chairman is determined by the Board

following recommendations from the

Remuneration Committee and Chief

Executive. The remuneration of

Non-executive Directors is determined by

the Board following recommendations

from the Chairman of the Remuneration

Committee having consulted with an

external adviser and the Chief Executive.

The total fees for Non-executive Directors

remain within the limit of £600,000 set out in the

Articles of Association.

Not applicable.

Provisions of previous Policy that will continue to apply – award made 2012

Long Term

Incentive Share

Plan



and shareholders.

Annual grant of share awards.

Three-year vesting period.

Annual limit – 150% of salary. 60% subject to three-year relative TSR

performance against a comparator group

comprising FTSE 250 constituents (as at the

grant date) (excluding financial service

companies, real estate companies and

investment trusts).

40% subject to three-year Adjusted EPS

growth targets.

Notes on Policy table and components of remuneration

Performance measures and targets

Measures for incentive plans reflect the strategic priorities which the Committee considers critical to the future success of the Company. Targets

are set by reference to budgeted financials, wider Group targets, external market consensus and stretching strategic growth outcomes.

Differences in remuneration for all employees

The majority of employees participate in a bonus plan. The size of award and the weighting of performance conditions vary by level, with

specific measures incorporated where relevant.

All members of the senior management team have historically participated in the LTISP arrangement. A smaller group of senior management

now participates in the LTAP at a reward level appropriate to their role.

Statement of consideration of employment conditions elsewhere in the Company

As the Committee has oversight of remuneration matters for the broader senior management population, it brings the reward of these

individuals into consideration when discussing packages for Executive Directors.

The Committee does not specifically ask employees to comment on matters related to the remuneration of Executive Directors, but any

comments received are taken into account.


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Approach to recruitment remuneration

The Committee’s approach to recruitment remuneration is to pay a competitive salary as appropriate to attract and motivate the right talent in

the role.

The following table sets out the various components which would be considered for inclusion in the remuneration package for the

appointment of an Executive Director. Any new Director’s remuneration package would include the same elements and be subject to the

same constraints as those of the existing Directors performing similar roles, as shown below:

Component Policy and principles

Base salary and

benefits

The salary level will be set taking into account the responsibilities of the individual and the salaries paid for similar roles in comparable companies.

Depending on the circumstances of any particular appointment the Committee may choose to set base salary above market median to attract

the right talent, or below market median with increases applied over a period of time to achieve alignment with market levels for the role with

reference to the experience and performance of the individual, all subject to the Company’s ability to pay.

Should relocation of a newly recruited Executive Director be required, reasonable costs associated with this relocation will be met by the

Company. Such relocation support could include but not be limited to payment of legal fees, removal costs, temporary accommodation/hotel

cost, a contribution to stamp duty, and replacement of non-transferrable household items. In addition, the Committee may grant additional

support as appropriate.

Other benefits provided will be aligned to those set out on pages 46 to 48.

Pension The Executive Director will be able to participate in the defined contribution scheme up to the annual allowance and a cash supplement

payment above this. Total benefit will not exceed 23% of Basic Salary.

Annual bonus The Executive Director will be eligible to participate in the annual bonus scheme as set out in the remuneration Policy table.

The Policy maximum award under the bonus will be 100% of salary.

The Remuneration Committee has discretion to increase the maximum award to 150% of salary in exceptional circumstances. Any bonus over

50% of salary is deferred into shares for three years as set out in the remuneration Policy table.

Long term

incentives

The Executive Director will be eligible to participate in the Long Term Alignment Plan at the Remuneration Committee’s discretion.

The maximum potential opportunity under this scheme is 90% of salary.

Associated performance measures would apply as set out in the remuneration Policy table.

Replacement

awards

The Committee will seek to structure any replacement awards so that overall they are no more generous in terms of quantum or vesting period

than the awards forfeited from a new recruit’s previous employer.

In determining quantum and structure of replacement awards, the Committee will seek to replicate the value taking into account, as far as

practicable, the timing, form and performance requirements of remuneration forgone. The Committee has the flexibility to use cash and/or

shares as the format for delivery of any replacement awards.

Service contracts and Policy on payment for loss of office

Service contracts and letters of appointment include the following terms.

Executive Director Date of commencement of contract Notice period

M Allen 18 July 2002 12 months

M Wilks 7 January 2008 12 months

T Atherton 23 May 2013 12 months

Martyn Wilks left the Board on 31 March 2015.

Executive Directors’ service agreements are available on the Company’s website www.dairycrest.co.uk.

Non-executive Director Letters of appointment Notice period

A Fry 15 July 2009 3 months

A Carr-Locke 15 July 2009 3 months

R Macdonald 4 October 2010 3 months

S Alexander 4 October 2010 3 months

S Farr 6 October 2011 3 months

Anthony Fry left the Board on 17 September 2014.

It is the Company’s Policy that Non-executive Directors should not normally serve for more than nine years. A template Non-executive

Director’s letter of appointment is available on the Company’s website.



External Appointments

Executive Directors may be invited to become Non-executive Directors of other companies and it is recognised that exposure to such duties

can broaden their experience and skills which will benefit the Company. External appointments are subject to agreement by the Chairman and

reported to the Board. Any external appointment must not conflict with a Director’s duties and commitments to Dairy Crest. Fees may be

retained by Directors for such appointments.

Termination Policy

The Remuneration Committee’s approach when considering payments in the event of termination is to take account of the individual

circumstances including the reason for termination, contractual obligations of both parties as well as share plan and pension scheme rules

(including relevant performance conditions).

The table below summarises the key elements of the Executive Director service contract and Policy on payment for loss of office.

Component Policy and principles

Notice period 12 months’ notice from Company.

12 months’ notice from Director.

Compensation for

loss of office in

service contracts

Up to 12 months’ salary plus an additional 3% to account for presumed salary increases from any salary review that may have taken place in

the notice period.

Payable monthly and subject to mitigation if Director obtains alternative employment up to 12 months after termination.

Other payments to the Director in question include medical benefits, cost of company car and a sum equivalent to 23% of annual salary

representing pension contribution for the unexpired part of the contractual notice period.

Under the terms of Mark Allen’s contract payments on termination are calculated as 90% of the sum of the following items – annual salary,

benefits, pension plus 50% of maximum bonus opportunity for the notice period. This will not be the Company’s Policy going forward for other

Executive Directors.

Under the terms of Martyn Wilks’ contract, payments on termination are calculated as annual base salary, benefits and pension contribution,

half of which would be paid on termination and the remainder paid in six equal monthly instalments.

Contractual provisions in respect of compensation for loss of office for Mark Allen and Martyn Wilks are therefore grandfathered.

In the event of a compromise or settlement agreement, the Remuneration Committee may make payments it considers reasonable in

settlement of potential legal claims. This may include an entitlement to compensation in respect of their statutory rights under employment

protection legislation in the UK or in other jurisdictions. The Remuneration Committee may also include in such payments reasonable

reimbursement of professional fees in connection with such agreements.

The reimbursement of repatriation costs or fees for professional or outplacement advice may also be included in the termination package, as

deemed reasonable by the Committee, as may the continuation of benefits for a limited period.

Treatment of

unvested deferred

bonus awards

under plan rules

If termination is by way of death, injury, illness, disability, redundancy, retirement, or any other circumstances the Committee determines,

deferred shares may be released on termination.

Otherwise, the proportion of awards released will be determined at the discretion of the Board.

Treatment of

unvested long term

incentive plan

awards under plan

rules

Any outstanding award will lapse at cessation of employment with the Company, unless the reason for cessation is by way of injury, ill-health,

disability, redundancy, retirement, or any other circumstances the Committee determines, when the award will vest at the normal vesting date

with the underpin and other conditions considered at the time of vesting. Alternatively, the Committee may determine that a proportion of the

award will vest immediately, with the proportion determined by the Committee taking into account satisfaction of the underpin and any other

factors the Committee consider relevant.

A proportion of the LTAP award will vest immediately on death, pro-rated for time

Exercise of

discretion

Any discretion available in determining treatment of incentives on termination of employment is intended only to be relied upon to provide

flexibility in certain circumstances.

The Remuneration Committee’s determination will take into account the particular circumstances of the Director’s departure and the recent

performance of the Company.

Change of control Outstanding awards and options would normally vest and become exercisable on a change of control to the extent that any performance

condition has been satisfied.

The proportion of awards that vest under the LTAP will be determined by the Remuneration Committee. Deferred bonus awards would normally

be released in full.

The Committee reserves the right to alter the performance period or the performance measures and targets of the annual bonus plan or of any

outstanding awards under the annual bonus plan or the LTAP in the event of a change of control, to ensure that the performance conditions

remain relevant but challenging.

The Committee has the discretion to test performance at the point of change of control or to allow awards to continue or roll-over in any

reasonable manner with agreement of the acquirer, taking into account the circumstances of the change of control.

There are no pre-determined special provisions for Non-executive Directors with regard to compensation in the event of loss of office.


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Illustration of application of remuneration Policy (updated for 2015)

A significant proportion of a Director’s total remuneration package is variable, being subject to the achievement of specified short term and

long term business objectives. The charts below show the composition of total remuneration at minimum, target and maximum performance

scenarios for the Executive Directors.

Director i Value of package (£000s)

M Allen

T Atherton

i Martyn Wilks left the Board on 31 March 2015

Notes to the scenarios:

Fixed: This element comprises salary as of 1 April 2015 (1 May 2015 for T Atherton), pension benefits (including salary supplement) and other

fixed benefits (company car, etc) as per the last known number.

Annual variable Remuneration: This element shows annual bonus (including any amount deferred) at 100% of salary in the maximum

scenario and 50% of salary in the target scenario.

Long term Variable Remuneration: This element shows remuneration in respect of the LTAP, at 90% of salary in the maximum scenario and

70% of salary in the target scenario. No allowance is made for share price growth, in accordance with the requirements of the disclosure rules.

Statement of consideration of shareholders views

The Board consulted with several larger shareholders on the proposal to grant the one-off Transformational Incentive Award (TIA) to the Chief

Executive. Further details are set out on pages 55 to 56.

The Committee discusses matters relating to Directors’ remuneration with major investors on an on-going basis and takes into account any

comments which are received.

Single total figure of remuneration – subject to audit

The table below sets out the analysis of total remuneration for each Director. An explanation of how the figures are calculated follows the table.

The total remuneration for each Director reflects the performance of the Company and the contribution each individual has made to the

on-going success of the Company.

Director Base salary/fees Taxable benefits Bonus LTISP iii Pension iv Total

(£’000s) 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14

Non-executive

Chairman

S Alexander 103 43 – – – – – – – – 103 43

Executive Directors

M Allen 518 518 29 28 97 423 178 159 119 119 941 1,247

M Wilks i 346 346 19 22 54 261 119 106 80 80 618 815

T Atherton 250 183 25 13 47 149 24 21 58 42 404 408

Non-executive

Directors

A Carr-Locke 43 43 – – – – – – – – 43 43

A Fry ii 111 155 43 – – – – – – – 154 155

R Macdonald 48 48 – – – – – – – – 48 48

S Farr 40 38 – – – – – – – – 40 38

i Martyn Wilks left the Board on 31 March 2015.

ii Anthony Fry left the Board on 17 September 2014. Taxable benefits relate to medical costs supported by Dairy Crest. The base salary figure includes a £39k payment

in lieu of notice.

iii For 2014/15, the values included are for the 2012 LTISP and have been calculated using the average middle market price during the final quarter of 2014/15. Awards

will vest on 1 July 2015. Should an Executive Director leave employment before 1 July 2015, vesting will be dependent upon the individual being considered as a

good leaver under the scheme rules. For 2013/14, the values included are the actual value of the shares which vested under the 2011 LTISP.

iv Pension amounts include employer’s pension contribution and salary supplement. Base salary, bonus and LTISP are defined on pages 46 to 48.

Annual report on remuneration

Maximum

Target

Minimum (Fixed)

0 250 500 750 1000 1250 1500 1750

41%

52%

28% (1,649)

28%

31%

20%

100%

(1,287)

(666)

0 125 250 375 500 625 750 875 1000

Maximum

Target

Minimum (Fixed)

41%

52%

28% (964)

(754)

(394)

28%

31%

20%

100%

Key: Fixed Remuneration Annual Variable Remuneration Long term Variable Remuneration



Notes

Bonuses detailed above include the full value of bonus entitlement which includes deferred bonus shares for 2013/14. No deferred bonus

shares were awarded in 2014/15.

Taxable benefits are valued at the taxable value, and include company car/car allowance and private medical insurance.

During the year, Mark Allen held the position of Non-executive Director including Audit Committee member and Remuneration Committee

member at Howdens Joinery Group plc, with fees in association with this work totalling £45k (2014: £43k).

Additional requirements in respect of the single total figure table – subject to audit

Performance against targets for annual bonus

Payment of the bonus is subject to the achievement of demanding short term financial targets and personal objectives. To ensure that an

appropriate balance is maintained between long term and short term reward, any bonus earned over 50% of annual salary is paid in the

Company’s shares and deferred for a three-year period subject to continued employment.

Bonus payouts for the 2014/15 performance year are set out below:

Measure Details

Maximum

potential as a

% of salary

Profit before tax Stretching targets based on budget, with a sliding scale between

threshold and maximum

60% 0% 0% 0%

Net debt Stretching targets based on budget, with a sliding scale between

threshold and maximum

15% 0% 0% 0%

Personal

objectives

A range of non-financial operational and strategic objectives will be

assessed by the Committee, with an appropriate award level set under

this element with reference to the overall performance of the business.

25% 18.75% 15.63% 18.75%

Total – 100% of

salary

18.75% of

salary = £97k

15.63% of

salary = £54k

18.75% of

salary = £47k

Deferred into

shares

– – – – –

Group adjusted profit before tax decreased by 7.2% in the year resulting in no award.

Net debt increased by £56m in the year resulting in no award.

Targets for 2014/15 have not been disclosed as they are considered commercially sensitive because of the information that they provide to the

Company’s competitors.

Long Term Incentive Plan 2012

Awards under the LTISP 2012 had a three-year performance period to 31 March 2015. 40% of the total award was based on the Group’s

Adjusted EPS and 60% was measured against the TSR performance of the FTSE 250 (excluding financial services companies, real estate

companies and investment trusts).

Measure Threshold Maximum Outcome

Vesting

(as % award

granted in 2012) Number of shares

Value (as shown in

Single total figure of

remuneration)

TSR performance

against FTSE 250

constituents (60%

of total LTISP

award)

Median (30% of TSR

award vests)

Upper quartile or

above (100% of TSR

award vests)

73/150 34.7% 67,153 £321,119

EPS target (40% of

total LTISP award)

RPI + 1% p.a. over

the three year

performance period

(30% of EPS award

vests)

RPI + 5% p.a. over

the three year

performance period

(100% of EPS award

vests)

Threshold level not

achieved

0% 0 0

Overall outcome 20.8% 67,153 £321,119

Outcome as a % of salary

M Allen M Wilks T Atherton


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Current position on outstanding LTAP awards – not subject to audit

The outstanding LTAP awards are subject to a dividend underpin for three years following the award being made. The award may be reduced

by an amount proportional to the percentage decrease in dividend in the event of a decline of up to 50%. If the decline exceeds 50%, the

Committee will use its discretion to determine the proportion of the award that shall vest.

Dividend cover must also be maintained in the range 1.5 – 2.5 over the three-year measurement period.

Total pension entitlements – subject to audit

Following the closure of the Dairy Crest Group Pension Fund (a defined benefit scheme) to future accruals, there is no increase in accrued

pension during the year other than inflationary increases.

The scheme closed to future accrual at 31 March 2010. Mark Allen decided to draw benefits from 31 March 2010 and receives an annual

pension. Mark Allen and Tom Atherton were members of the defined contribution scheme throughout 2014/15. The Company made

contributions up to the £40,000 limit for employee and employer contributions. Further cash supplements were paid such that the total of cash

supplements and employer contributions amounted to 23% of basic salary. Martyn Wilks was not a member of any Company pension

scheme in the year ended 31 March 2015 and received a salary supplement of 23% of basic salary.

Payments for loss of office – subject to audit

Martyn Wilks left the Board on 31 March 2015. The payments for loss of office to be made to Martyn Wilks are as follows:

Termination payment

The termination payment to Martyn Wilks on leaving employment was calculated in accordance with the provisions of his service contract,

which entitled him to an amount based on his salary, non-cash benefits and pension benefits over one year. An amount of £218,794

representing half of this termination payment was paid on termination. An amount of £1,430 was paid for legal fees associated with Martyn

Wilkes’ termination of employment.

Deferred bonus

All outstanding deferred bonus shares were released to Martyn Wilks comprising 18,267 shares (including on vesting additional shares in

respect of dividends paid).

Long term incentives

Martyn Wilks has outstanding awards under the LTAP 2013 and LTAP 2014. These will be pro-rated up to termination and released on the

normal vesting dates, subject to achievement against the dividend performance measure over the period. As he was with the Company for the

full performance period of the 2012 LTISP, the estimated value of shares vesting is included in the single total figure above. He will receive the

shares vesting under this award in full with no pro-ration on the normal vesting date.

Payments to past Directors – subject to audit

In the year, Alastair Murray received £92,860 from the vesting of the 2011 LTISP (based on his vested award of 17,794 shares). £92,000 was

disclosed in the single figure table in the 2013/14 report representing an estimate of Mr Murray’s vested award and based on the average

share price for the last quarter of that financial year.



Scheme interests awarded during the financial year – subject to audit

LTAP 2014 award

The award made under the LTAP in 2014 was made on 16 December 2014. The award level is determined based on achievements over the

prior year against the pre-grant performance scorecard, comprising of measures aligned to Dairy Crest’s strategic priorities. Outcomes

against the 2014 scorecard are summarised in the second table below, and detail on these outcomes against the targets set and context in

which decisions were made is included thereafter. Note that this award is subject to a dividend underpin for the first three years of the vesting

period and will be settled through nil cost share options.

Director

Level of award % of

salary Face value £000s

Percentage vesting at

threshold performance Number of shares End of vesting period

Mark Allen 80% 414 N/A 84,406 50% at December 2018

50% at December 2019

Martyn Wilks 80% 277 N/A 56,464 50% at December 2018


Tom Atherton 80% 176 N/A 42,397 50% at December 2018


Determination of 2014 grant and performance assessment:

Measure KPI Alignment with strategy Weighting Outcome

1. Profit Adjusted EBITDA target each year. Delivery of profit is core to the business

and supports the progressive dividend

Policy.

30% 23%

2. Balance sheet

efficiency

ROCE target each year whilst

maintaining net debt/EBITDA in the

1.0-2.0 x range.

Ensuring acceptable return on

investment within a sustainable level of

gearing.

20% 17%

3. Corporate

Activity &

Efficiencies

Delivery of annual cost savings targets.

Delivery of synergies and return on

investment following acquisitions or

successful divestments (when relevant).

Ensuring cost savings are delivered on

an on-going basis.

Ensuring that major acquisitions/

divestments deliver against relevant

synergy and return targets.

15% 15%

4. Brand Growth Key brand value growth over one and

three years versus markets in which they

operate.

Brand growth is key to longer term

business growth.

15% 5%

5. Innovation Achieve each year the targeted

proportion of revenue from innovation in

previous three years.

Innovation is a key driver of productivity

and growth.

10% 6%

6. Corporate

Responsibility

A range of metrics including

improvements in accident incident rates,

reduced CO2 emissions & improved

employee engagement.

Delivering results in a sustainable way

which enhances reputation and

stakeholder engagement.

10% 8%

Total 74%

For Executive Directors

this converts to an award

of 80% of salary

1. Profit Weighting: 30%. Outcome: 23%

The Remuneration Committee assessed profit performance against an adjusted EBITDA KPI target range set by reference to the budget.

EBITDA performance in 2013/14 showed considerable improvement in what continued to be a challenging market. Milk prices remained high,

resulting in a c£45m increase in costs that had to be recovered. Developments in the retail sector and the increased prominence of

discounters led to further pressures being applied to the Dairies business.

The Remuneration Committee considered that against this context, the adjusted EBITDA outcome showed a good performance and awarded

23% on this basis.


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2. Balance sheet efficiency Weighting: 20%. Outcome: 17%

The Remuneration Committee determined balance sheet efficiency for FY 2012/13 through the assessment of ROCE performance (calculated

based on average operating assets) against an annual target based on budget and the long term objective of 12%. As last year, the

Remuneration Committee felt it important to underpin the assessment with the requirement that gearing (being net debt/EBITDA) remain

below 2.0 times.

ROCE for the year of 13.8% was ahead of the long term 12% target. This result represented a good performance against our balance sheet

efficiency objectives and resulted in an award of 17%

3. Corporate Activity & Efficiencies Weighting: 15%. Outcome: 15%

Given no major M&A activity during the year, the outcome for this measure was based upon cost savings. Against a target of £20 million the

Group made savings of £25 million. This resulted in a full award being made against this component.

4. Brand Growth Weighting: 15%. Outcome: 5%

The key brand performance was mixed. Three of our four key brands recorded sales growth below the market albeit both FRijj and Country

Life both performed better in the second half of the year. Cathedral City continues to significantly outperform the market. Although longer-term

data shows three of our four key brands outperforming the market, we believe an award of 5% is appropriate given the importance of brand

growth in the current environment.

5. Innovation Weighting: 10%. Outcome: 6%

Under this measure, the Remuneration Committee took into account the Group target that 10% of annual revenue should be generated from

product innovation over the previous three years. In their assessment, the Remuneration Committee noted that this target should be

considered for branded sales as well as for overall Group revenue.

Achieving 4% of Group revenue and 7% of branded revenue through innovation was considered by the Remuneration Committee as showing

some progress against this component, albeit not in line with the Group’s challenging targets. As a result, an award of 6% was considered

appropriate.

6. Corporate Responsibility Weighting: 10%. Outcome: 8%

We have made good progress on health and safety during the year but certain other targets with respect to landfill avoidance and employee

engagement were not met. However, we were the highest scoring company in BITC’s CR index with 4.5 out of 5.0. This measures a range of

Corporate Responsibility criteria consistent with our LTAP measures and therefore an award of 8% is considered appropriate.

Dividend underpin

The level of vesting of this award may be reduced to the extent that a dividend underpin over the period April 2014 – March 2017 is not met.

The award may be reduced by an amount proportional to the percentage decrease in dividend in the event of a decline of up to 50%. If the

decline exceeds 50%, the Remuneration Committee will use its discretion to determine the proportion of the award that shall vest. In such

circumstances not more than 50% of the award will vest.

Dividend cover must be maintained in a specific range over the three-year measurement period. The Committee retains discretion to reduce

the vesting of awards as appropriate should dividend cover be outside this range.

Chief Executive one-off Transformational Incentive Award

At the EGM held in December 2014, shareholders approved the grant of a one-off Transformational Incentive Award (‘TIA’) to Mark Allen.

The Remuneration Committee believes that the retention of Mark Allen and his leadership are critical to the business now and will remain so

over the subsequent transformational years. The Committee therefore sought the approval of shareholders at the EGM to enable the grant to

Mark Allen of a one-off TIA outside the approved Directors’ Remuneration Policy.

The Committee considers that this additional award will ensure that Mr Allen is appropriately incentivised and rewarded for the achievement of

key objectives that are central to Dairy Crest’s transformation; is aligned with the interests of our Company and shareholders; and that by

supporting his retention, it reduces risk during a critical period.

The key terms of the TIA, on which the Committee consulted the Company’s largest shareholders, are detailed below:

The grant of a nil cost option to acquire Ordinary Shares was made to Mark Allen following the EGM. The option is exercisable three years

after grant (in December 2017) to the extent that the stretching performance conditions set in relation to the award are achieved (as

described below).

The grant was made under rules of the LTISP which were approved by shareholders in 2006 – this is the long term incentive operated by

Dairy Crest prior to the introduction of the LTAP. No further awards are intended to be made under the LTISP.



The award is structured as a base award over Ordinary Shares having a market value at grant equivalent to 75% of Mark Allen’s base salary.

A multiplier of between 0 and 3 times the number of Ordinary Shares subject to the base award will be applied to it at the end of the three

year vesting period depending on the level of performance achieved. The face value of the award is therefore £1,165.5k

The Committee will determine the level of vesting of the TIA based on performance objectives which are intended to be demanding. In

measuring performance in this regard, the Committee has identified three categories of objectives on which the assessment of performance

will be based. These relate to the restructuring of the business and its future success, as follows:

– managing the competition approval process relating to the sale of the Dairies operations, requiring strong leadership and a high level of

personal involvement from a chief executive officer as an acknowledged leader in the sector, as well as managing the business as a whole

through a period of extended uncertainty;

– appropriately reshaping the Group, taking account of the outcome of the competition approval process; and

– establishing a successful future business, by reference to the development of the Group and its principal business streams, including the

delivery of value to shareholders.

The objectives set by the Committee include both financial and non-financial objectives. Where appropriate, the Committee will set a

performance range against which threshold, target and stretch performance will be measured.

In addition to the objectives themselves, the Committee will assess the quality of execution of the objectives, including, in particular, in

relation to risk, sustainability and shareholder value.

At the end of the three year performance period, the Committee will assess the sum of the evaluations of the individual objectives to

determine the total level of vesting of the TIA and may exercise discretion to reduce the level of vesting when reviewing Dairy Crest’s

performance in the round, including the level of value delivered to shareholders over the period.

The TIA only commenced in December 2014 but in that three month period Mark Allen has made significant progress in:

– engaging all key stakeholders in the sale of the Dairies business resulting, with respect to competition approval, in a UK Competition and

Markets Authority review of the transaction

– the restructuring of the Dairy Crest business into two separate divisions ensuring appropriate category focus and delivery of performance

– leading major communication channels with employees, suppliers, customers and other interested parties ensuring clear communication of

Dairy Crest’s strategy during the pre-transformation period

– leading the new Whey/GOS development which is on plan to deliver expected outcomes and enhance shareholder value

Updated objectives and performance against the objectives will be disclosed in each Directors’ Remuneration Report for each of the three

financial years during the performance period and full disclosure of the performance levels achieved (including the multiplier applied and

vesting level) will be set out in the directors’ remuneration report for the financial year in which the performance period ends. It is intended

that the annual update provided to shareholders on the objectives and performance assessment will become more detailed over the course

of the performance period. The Committee has chosen this approach because the timing of the competition approval process for the sale

of the Dairies operations is not within the Company’s control and, recognising also the commercial sensitivity in relation to the future

development of Dairy Crest, the ability to disclose anything more than summary information in advance is limited.

In line with best practice requirements under the Corporate Governance Code, the TIA is subject to malus and clawback provisions set by

the Committee.

Leaver and change of control provisions are as prescribed under the LTISP rules.

Shareholder dilution

In accordance with the guidelines set by the Investment Association (‘IA’), the Remuneration Committee can satisfy awards under all its share

plans with new issue shares or shares issued from treasury up to a maximum of 10% of its issued share capital in a rolling 10-year period to

employees under all its share plans. Within this 10% limit, the Company can only issue (as newly issued shares or from treasury) 5% of its

issued share capital to satisfy awards under discretionary or executive plans. Currently 7.1% of issued shares have been made under share

plans, with 1.7% under discretionary or executive schemes.

Statement of Director’s shareholdings and share interests – subject to audit

Executive Directors are encouraged to build a shareholding in the Company equivalent to 200% of salary and to this end would normally retain

50% of net proceeds from share plans and deferred bonus share awards until that shareholding is achieved. Shareholdings exclude unvested

options under the LTISP and include unvested deferred shares granted to Executive Directors as part payment of bonuses and unvested LTAP

awards. Mark Allen has satisfied the shareholding requirement. Tom Atherton has not met the requirement and will continue to grow his

shareholding.


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The interests of the Directors at the end of the year in the ordinary share capital of the Company were as follows:

Director

Number of shares

owned outright

(including connected

persons)

LTISP 2012 iii

Unvested LTAP

2013 shares iv

Unvested LTAP

2014 shares v

Unvested

TIA shares vi

Deferred

annual bonus

shares vii

SAYE viii

M Allen 167,663 37,220 83,879 85,484 240,623 36,874 5,595

M Wilks i 62,396 24,899 56,112 57,185 – 18,267 5,595

T Atherton 6,097 5,034 32,410 42,939 – 13,793 4,787

A Carr-Locke 2,000 – – – –

R Macdonald 1,000 – – – –

S Alexander 1,000 – – – –

S Farr 4,465 – – – –

A Fry ii 3,000 – – – –

i Martyn Wilks left the Board on 31 March 2015.

ii Anthony Fry left the Board on 17 September 2014 (interests in shares as at this date).

iii Long Term Incentive Share Plan 2012 (nil cost share options): The performance period ended on 31 March 2015 and awards will vest on 1 July 2015. Amounts shown

are numbers of shares which will vest.

iv Long term Alignment Plan 2013 (nil cost share options): The period for the dividend underpin condition will end on 31 March 2016. 50% of awards will vest on

15 August 2017 and 50% will vest on 15 August 2018. Amounts shown include grant and options related to ‘reinvested’ dividends to the date of this Report.

v Long term Alignment Plan 2014 (nil cost share options): The period for the dividend underpin condition will end on 31 March 2017. 50% of awards will vest on

15 December 2018 and 50% will vest on 15 December 2019. Amounts shown include grant and options related to ‘reinvested’ dividends to the date of this Report

vi One-off transformational award to the Chief Executive (nil cost share options): The performance period will end on 23 December 2017 and awards will vest shortly

after. Amounts shown include grant and options related to ‘reinvested’ dividends to the date of this Report.

vii Deferred bonus scheme (nil cost share options).

viii Save As You Earn Scheme 2012 (cost options). The exercise price for these options is 281 pence per share and the exercise period is 3/2016–9/2016. Save As You

Earn Scheme 2014 (cost options). The exercise price for these options is 376 pence per share and the exercise period is 9/2017–2/2018. There are no applicable

performance conditions.

There have been no changes in Directors’ shareholdings between 31 March 2015 and 20 May 2015.

Gain on exercise of share options

Director Number of options exercised Market value at exercise date Gain on exercise of share options

M Allen 21,180 £106,048 £106,048

M Wilks 14,191 £71,054 £71,054

T Atherton 2,451 £12,272 £12,272

Performance graph and table

The graph below sets out for the six years ended 31 March 2015 the total shareholder return of Dairy Crest Group plc and of the FTSE 250

index (excluding investment companies) of which the Company is a constituent member.

Dairy Crest – Total Shareholder Returns for £100 invested

FTSE 250 (excluding

investment companies)


March 10 March 11 March 12 March 13 March 14 March 1580

100

120

140

160

180



Chief Executive’s pay 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

Total remuneration

(£’000s)

1,018 888 904 937 1,247 941

Annual bonus (% max) 94% 54% 50% 52.5% 81.7% 18.8%

Long term incentive

vesting (% max)

0% 0% 0% 0% 23.5% 20.8%

Percentage change in Chief Executive’s remuneration

The table below sets out the percentage change in the Chief Executive’s salary, benefits and bonus between 2013/14 and 2014/15, compared

with the percentage change in the average of each of these components of pay for the relevant members of the salaried clerical,

administrative, supervisory and management population allocated to Hay bands, which comprises 24% of the total workforce and has been

identified as the most appropriate for this table in view of the comparable nature of employment and incentive arrangements:

Salary Taxable benefits Bonus

2014/15 2013/14 % change 2014/15 2013/14 % change 2014/15 2013/14 % change

Chief Executive (£’000s) 518 518 0% 29 28 3% 97 423 -77%

Average pay for wider

employee population

(£’000s)

41 41 1% 4.9 5.2 -7% 1.1 5.4 -79%

Relative importance of spend on pay

The table below illustrates the relative importance of spend on pay at Dairy Crest, compared with distributions made to shareholders in

2013/14 and 2014/15:

£m 2014/15 2013/14 % change

Employee remuneration

costs

144.0 157.0 -8.3%

Dividends 29.2 28.5 2.5%

LTAP 2015 award

The award made under the LTAP 2015 is based on achievements over the prior year against the pre-grant performance scorecard, comprising

measures aligned to Dairy Crest’s strategic priorities. This award will be granted later in 2015. Outcomes against the 2015 scorecard are

summarised in the second table below and detail on outcomes against the targets set and the context in which decisions were made is

included thereafter. Note that this award is subject to a dividend underpin for the first three years of the vesting period.

Director Level of award % of salary Face value £’000s End of vesting period

Mark Allen 69.2% 358 50% 4 years after the award date

50% 5 years after the award date

Tom Atherton 69.2% 207 50% 4 years after the award date

50% 5 years after the award date

The number of shares granted will be calculated in accordance with the rules approved by shareholders at the 2013 AGM.


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Determination of 2015 grant and performance assessment:

Measure KPI Alignment with strategy Weighting Outcome

1. Profit Adjusted EBITDA target each

year.

Delivery of profit is core to the

business and supports the

progressive dividend Policy.

30% 2.5%

2. Balance sheet

efficiency

ROCE target each year whilst

maintaining net debt/EBITDA in

the 1.0-2.0 x range.

Ensuring acceptable return on

investment within a sustainable

level of gearing.

15% 2.5%

3. Corporate Activity &

Efficiencies

Delivery of annual cost savings

targets.

Delivery of synergies and return

on investment following

acquisitions or successful

divestments (when relevant).

Ensuring cost savings are

delivered on an on-going basis.

Ensuring that major

acquisitions/divestments deliver

against relevant synergy and

return targets.

15% 15%

4. Brand Growth Key brand value growth over

one and three years versus

markets in which they operate.

Brand growth is key to longer

term business growth.

20% 12%

5. Innovation Achieve each year the targeted

proportion of revenue from

innovation in previous three

years.

Innovation is a key driver of

productivity and growth.

10% 8%

6. Corporate

Responsibility

A range of metrics including

improvements in accident

incident rates, reduced CO2

emissions & improved

employee engagement.

Delivering results in a

sustainable way which

enhances reputation and

stakeholder engagement.

10% 8%

Total 48%

For Executive Directors this

converts to an award of 69.2%

of salary

1. Profit Weighting: 30%. Outcome: 2.5%

The Remuneration Committee assessed profit performance against an adjusted EBITDA KPI target range set by reference to the budget.

EBITDA in 2014/15 was below prior year in what continued to be a very challenging market. Our Dairies business has faced very strong

competition in liquid milk markets and sharp falls in commodity realisations. Our branded business performed relatively well in a deflationary

market, but overall the Group failed to achieve the challenging EBITDA target it set for itself.

This weaker than expected adjusted EBITDA outcome, resulted in an award of 2.5%.

2. Balance sheet efficiency Weighting: 15%. Outcome: 2.5%

The Remuneration Committee determined balance sheet efficiency for FY 2013/14 through the assessment of ROCE performance (calculated

based on average operating assets) against an annual target based on budget and the long term objective of 12%. As in previous years, the

Remuneration Committee felt it important to underpin the assessment with the requirement that gearing (being net debt/EBITDA) remain

below 2.0 times.

A ROCE for the year of 11.5% was behind of the long term 12% target but above the vesting level for this element. 2014/15 was a year of

significant capital expenditure at Davidstow to support future demineralized Whey and galacto-oligosaccharide production. However, returns

will not start to be generated until 2015/16 and this reduces ROCE in 2014/15. The outturn of 11.5% is at the bottom of the vesting range. With

a year-end gearing of 2.0 times, at the top end of the range, the Remuneration Committee awarded only 2.5% for this LTAP element.

3. Corporate Activity & Efficiencies Weighting: 15%. Outcome: 15%

Given no major completed M&A activity during the year, the outcome for this measure was based upon cost savings. The Group has, once

again, considerably exceeded its £20m cost saving target and the full award of 15% has been made for this measure.

4. Brand Growth Weighting: 20%. Outcome: 12%

The key brand performance was mixed. Three of our four key brands recorded sales growth ahead of the market in 2014/15 when all sales

channels were considered, with Cathedral City continuing to significantly outperform the market, Clover increasing market share and FRijj

sales up 7%. Longer-term data showed two of our four key brands outperforming the market. On this basis the Remuneration Committee

decided an award of 12% was appropriate.

5. Innovation Weighting: 10%. Outcome: 8%

Under this measure, the Remuneration Committee took into account the Group target that 10% of annual revenue should be generated from

product innovation over the previous three years. In their assessment, the Remuneration Committee noted that this target should be

considered for branded sales as well as for overall Group revenue.



Against the challenging targets set, delivering 7% of branded revenue through innovation was considered by the Remuneration Committee as

showing both good progress against this component and a competitive positioning to the market. The Committee also considered the

on-going innovation in the non-branded area of the business with increasing use of environmentally friendly light-weighted polybottles. As a

result, an award of 8% was made for this element.

6. Corporate Responsibility Weighting: 10%. Outcome: 8%

We have again made good progress on health and safety with reducing accidents and days lost and showed positive improvement against

our environmental targets. Dairy Crest achieved the maximum 5 star rating in the BITC Corporate Responsibility Index, further improving on an

impressive assessment in 2014. However, an employee survey was not undertaken in the year, and some quality customer complaint targets

were not met. On balance across these various CR measures, the Remuneration Committee considered an award of 8% as appropriate.

Dividend underpin

The level of vesting of this award may be reduced to the extent that a dividend underpin over the period April 2015 – March 2018 is not met.

The award may be reduced by an amount proportional to the percentage decrease in dividend in the event of a decline of up to 50%. If the

decline exceeds 50%, the Remuneration Committee will use its discretion to determine the proportion of the award that shall vest. In such

circumstances not more than 50% of the award will vest.

Dividend cover must be maintained in a specific range over the three-year measurement period. The Committee retains discretion to reduce

the vesting of awards as appropriate should dividend cover be outside this range.

Statement of implementation of Policy in the following financial year

The Directors’ remuneration Policy will be implemented for the 2015/16 financial year as follows:

Base salary – £’000s

Role 2014/15 Change to base salary as at 1 April 2015:

Mark Allen 518 No change

Tom Atherton * 260 300 (effective from 1 May 2015)

* Tom Atherton was brought onto the Board at a salary level below the market lower quartile for his role. In line with the Remuneration Committee’s intent as stated in

the 2013 Remuneration Report, he has been awarded an increase for 2015 to bring his salary closer towards a market competitive level. The 15.4% increase reflects

our ongoing intention to move Mr Atherton to a market median positioning as his experience in role grows. It is therefore anticipated that subject to his continued

strong performance, Mr Atherton will receive further appropriate increases such that his salary positioning is in the market median range against FTSE 250 CFOs.

Non-executive Directors’ fees – £’000s

Role 2014/15 Effective 1 April 2015

Non-executive Chairman 155 155

Non-executive Director

(base)

38 38

Audit Committee Chair +5 +5

Corporate Responsibility

Chair

+5 +5

Remuneration Committee

Chair

+5 +5

Senior Independent

Director

+5 +5

Fees for Non-executive Directors have remained unchanged since the 2011/12 financial year.

Bonus measures

Maximum opportunity for Executive Directors under the 2015/16 bonus remains at 100% of salary.

Performance will be assessed against the following measures:

Operating profit – 45% of award

Free cash flow – 10% of award

Personal objectives – 15% of award

Measure in relation to the success of the sale of the Dairies operations – 30% of award

Given the significance of the sale of the Dairies operations, the Remuneration Committee undertook a review of the performance measures of

the bonus scheme to ensure appropriate alignment in this year of change. Accordingly, the profit before tax and net debt targets have been

changed to Operating Profit excluding Property Sales and Free Cash Flow, respectively. In addition, a measure relating to the sale of Dairies

has been included. These changes reflect the strategic objectives of the Company at this critical phase in its evolution.


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The targets for the 2015/16 annual bonus measures are considered commercially sensitive because of the information that this provides to the

Company’s competitors.

Malus and clawback provisions will be introduced in respect of the 2015/16 and subsequent bonus awards. The malus provision will apply to

the deferred share awards up to vesting. The clawback provision will apply to the cash award for three years from the date of payment.

Clawback may be operated in the event of gross misconduct on the part of the employee and/or material misstatement in Company or Group


LTAP 2016 award

A grant will be made in 2016 under the LTAP, in line with the disclosed Policy. As the grant will be based on a scorecard of metrics assessed

over the 2015/16 financial year, below we set out the scorecard which will determine the grants made in 2016. We have included the 2015/16

KPIs on which performance will be assessed and the associated alignment to strategy. We have not included specific targets on the KPIs, as

the targets are considered commercially sensitive. The outcomes for this award will be disclosed in the 2015/16 Directors Remuneration

Report.

Measure KPI Alignment with strategy Weighting

Profit Adjusted EBITDA target Delivery of profit is core to the business and

supports the progressive dividend policy

30%

Balance Sheet Efficiency ROCE target whilst maintaining net debt/

EBITDA in the 1-2 range

Ensuring acceptable return on investment

within a sustainable level of gearing

20%

Corporate Activity and

Efficiences

Delivery of annual cost savings targets

Delivery of synergies and return on

investment following acquisitions or

successful divestments (when relevant)

Ensuring cost savings are delivered on an

on-going basis

Ensuring that major acquisitions/

divestments deliver against relevant

synergy and return targets

15%

Brand Growth Key brand growth over one and three years

versus the markets in which they operate

Brand growth is key to longer term

business growth

20%

Revenue Growth through

Innovation

Achieve each year, the targeted proportion

of revenue from innovation in previous three

years

Innovation is a key driver of productivity and

growth

10%

Corporate Responsibility Range of metrics aligned to the 40 pledges

including improvements in accident

incident rates, reduced CO2 emissions and

improved/maintained BITC score

Delivering results in a sustainable way

which enhances reputation and

stakeholder engagement

5%

Measures and KPIs for 2015/16 are consistent with 2014/15 and support the long term strategy of the Group. However certain weightings

have been adjusted to reflect changes in relative priorities over the next 12 months. The LTAP maintains a minimum 60% weighting of financial

KPIs within the 2015/16 scorecard.

Sharesave Scheme

The Sharesave Scheme is open to all eligible employees and full time Directors. Employees enter into an approved savings contract over a

three-year term to make monthly contributions up to an overall maximum of £500 per month (new maximum level with effect from 1 April

2014). At the end of the term, members have the right to buy ordinary shares in the Company at a price fixed at the time of the option grant.

Options may not be granted at less than 80% of the market price at the time of grant.

Consideration by the Directors of matters relating to remuneration

Members of the Remuneration Committee

The Board has appointed a Remuneration Committee of Non-executive Directors of the Company. During the year the Committee consisted of:

Stephen Alexander (Chairman until 3 November 2014);

Richard Macdonald (Chairman from 3 November 2014);

Andrew Carr-Locke; and

Sue Farr.

Anthony Fry, Company Chairman (until leaving the Board on 17 September 2014), Stephen Alexander in his capacity as Company Chairman

(effective from 17 September 2014) and Mark Allen, Chief Executive attended the Remuneration Committee by invitation. Members of the

Remuneration Committee have no potential conflicts of interest arising from cross-directorships and they are not involved in the day-to-day

running of the Company.

The Committee’s activities during the financial year

The Remuneration Committee is responsible for the broad Policy with respect to senior executives’ salary and other remuneration. It

specifically determines, within remuneration principles agreed with the Board, the total remuneration package of each Executive Director and

reviews with the Chief Executive the remuneration packages for other senior executives. A copy of the terms of reference of the Committee

can be found on the Company’s website.


In 2014/15, the Committee met 9 times. Details of attendance are shown on page 37 and the Committee discussed, amongst others, the

following matters:

Meeting Agenda items discussed

April 2014 Confirmation of Termination Provision for Executive Service Agreement

May 2014 Approval of 2013/14 Bonus, LTAP & LTISP outcomes

Approval of 2014/15 Bonus, LTAP Targets

Executive Directors Remuneration

Approval of Remuneration Report

July 2014 Executive Directors Remuneration

November 2014

(2 meetings)

Executive Directors Remuneration

January 2015 Review of Terms of Reference for Remuneration Committee

Changes in Corporate Governance

Remuneration Report – Updates to Reporting

February 2015 Review of Bonus Scheme Rules 2015/16

March 2015 Review of Bonus Scheme Rules 2015/16

Review of Draft Remuneration Report

Review of potential bonus and long term Incentive outcomes

Advisors to the Remuneration Committee

The Remuneration Committee has appointed PricewaterhouseCoopers LLP (‘PwC’) to provide advice on executive remuneration. PwC have

provided such advice historically, and were originally appointed through a competitive tendering process.

Work undertaken by PwC for the Committee included updates to the Remuneration Committee on remuneration and governance trends and

market practice, and providing remuneration benchmarking information for Executive Directors. PwC have also supported the Remuneration

Committee in the design and operation of the TIA. In this financial year, they were paid £90,700 based on agreed hourly rates.

During the year, PwC also provided other consultancy services to the Group, including corporate tax advice, share plans support, and

programme management support.

The Remuneration Committee reviews the independence and objectivity of the advice it receives from PwC at a private meeting held in May

each year. It is satisfied that PwC is providing objective and robust professional advice. PwC is a member of the Remuneration Consultants

Group and has signed up to that group’s Code of Conduct.

The Remuneration Committee also received materials, assistance and advice on remuneration Policy from Robert Willock, the Group HR

Director of Dairy Crest. The Chief Executive attends all meetings by invitation, but is not present at any discussions relating specifically to his

own remuneration.

Statement of voting at General Meeting

The table below shows the advisory vote on the 2013/14 remuneration report at the 2014 AGM.

Number of votes cast For Against Withheld

56,146,521 52,490,948

93.49%

3,655,573

6.51%

14,384,844

The table below shows the binding vote on the 2013/14 remuneration Policy at the 2014 AGM.

Number of votes cast For Against Withheld

70,936,887 68,099,552

96.00%

2,837,335

4.00%

44,478

The Committee believes the votes in favour of the remuneration report and Policy demonstrate the strength of support of shareholders for the

executive remuneration arrangements at Dairy Crest.

The Directors’ remuneration report from pages 45 to 62 has been approved by the Board and is signed on its behalf by

Richard Macdonald

Chairman of the Remuneration Committee

20 May 2015



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DIRECTORS’ REPORT

The Companies Act 2006 (‘CA 2006’) together with the UK Listing

Authority’s Disclosure and Transparency Rules (‘DTRs’) and Listing

Rules (‘LRs’) require certain disclosures to be made. The Strategic

report and the Corporate Governance report at pages 4 to 31 and

pages 35 to 44 respectively, together with the details at pages 32

and 33 of the Directors in office at the date of this Annual Report

are expressly incorporated into this, the Directors’ Report.

Going concern: The Group and Company’s business activities,

together with factors likely to affect future development,

performance and position are set out in the Strategic report from

pages 4 to 31. The financial position, cash flows, liquidity position

and borrowing facilities are described in the Financial review on

pages 28 to 31 (which also form part of the Strategic report). In

addition, Notes 30 and 31 to the Accounts include the Group and

Company’s objectives, policies and processes for managing its

capital; its financial risk management objectives; details of its

financial instruments and hedging activities; and its exposures to

credit risk and liquidity risk. As highlighted in Note 30, the

Company and Group meet day-to-day working capital

requirements through syndicated revolving credit facilities and cash

to ensure that forecast net borrowings plus a reasonable operating

headroom are covered by committed facilities which mature at

least 12 months after the year end. At 31 March 2015, effective

headroom was £180.7 million. There were no breaches of bank

covenants in the year ended 31 March 2015 and projections do not

indicate any breaches in the foreseeable future. Having reviewed

and taken into account Going Concern and Liquidity Risk:

Guidance for Directors of UK Companies 2009, published by the

Financial Reporting Council in October 2009, the Directors are

satisfied that the Company and the Group have adequate

resources to continue operating for the foreseeable future. For this

reason they continue to adopt the going concern basis in preparing

the financial statements.

Future developments: Future developments are described in the

Strategic report at pages 4 to 31.

Group results: The Group’s consolidated income statement set

out on page 71 shows a profit for the financial year of £20.5 million

compared with £50.2 million profit in 2013/14.

Dividends: the Directors are recommending a final dividend of

15.7p (2013/14: 15.4p) per ordinary share, which if approved, will be

paid to members whose name appears on the register at the close

of business on 3 July 2015. Together, the final dividend and interim

dividend (6.0p per ordinary share paid on 29 January 2015) make

total dividends for the year of 21.7p per ordinary share (2013/2014:

21.3p).

Directors: Details of the Directors of the Company at the date of

this Report are set out at pages 32 to 33.

Directors’ interests: Details of the interests in the shares of the

Company of the Directors holding office at the date of this Report,

along with those of the Directors who held office during the year

but retired or resigned from office, and their immediate families

appear in the Remuneration Report on page 57. Details of the

Directors’ service contracts and letters of appointment appear in

the Remuneration Report on page 49. No Director had a material

interest in any significant contract with the Company or any of its

subsidiaries during the year. Procedures for dealing with Directors’

conflicts of interest are in place and are operating effectively. The

Company maintains liability insurance for its Directors and Officers

and those of its subsidiaries. The Directors, Company Secretary

and other Officers of the Company and those of its subsidiaries are

indemnified by the Company to the extent permitted by company

law. That indemnity provision has been in place during the year

and remains in force.

Disclosure of information to the Auditor: So far as each

Director in office at the date of approval of this Report is aware,

there is no relevant audit information of which the Company’s

External Auditor, Ernst & Young is unaware. Each of the Directors

has taken all steps that they might reasonably be expected to have

taken in order to (i) make themselves aware of any relevant audit

information and (ii) establish that the External Auditor is aware of

such information. For the purposes of this statement on disclosure

of information to the External Auditor, ‘relevant audit information’ is

the information needed by the Company’s External Auditor in

connection with the preparation of its report at pages 67 to 70.

Political Donations: No political donations or expenditures were

made or incurred during the year.

Financial instruments: Details of the use by the Company and

its subsidiaries of financial instruments and any related risk

management objectives and policies (including hedging policy) and

exposure, including to price risk, credit risk, liquidity risk and cash

flow risk (of the Company in connection with such financial

instruments) can be found at Note 30 to the financial statements.

Research and development: The Group has adopted a target of

delivering 10% of its annual turnover through new product

development. Focus continues to be on offering consumers a wide

product mix, and especially the development of lower fat variants

of existing products. Dairy Crest remains at the forefront of dairy

industry developments to reduce packaging waste through

innovation.

Employees: At the end of March 2015, the Group employed

approximately 4,100 people. It depends on the skills and

commitment of its employees in order to achieve its objectives.

Personnel at every level are encouraged to make their fullest

possible contribution to Dairy Crest’s success. Details of the

Group’s employment policies can be found on pages 8 and 9.

Employees are kept regularly informed on matters affecting them

and on issues affecting the Group’s performance through a variety

of communication tools, including the Group intranet. Regular

employee surveys enable an understanding of, amongst other

matters, the general satisfaction level of employees with their

employment, any questions or concerns which employees have in

relation to the business of the Group, an understanding of the

effectiveness of management of and communication with

employees. Following employee surveys, specific action plans are

drawn up and implemented on a site by site basis to address

issues which are raised through the surveys. Ordinarily, the senior

management team conducts road shows which all employees are

invited to attend. They provide a forum for, amongst other matters,

the communication to employees of the performance of the

business of the Group, anticipated future developments, significant

matters of required focus for the coming period, and the

opportunity for employees to ask questions of senior management.

In light of the proposed sale of the Dairies business, road shows

have been temporarily put on hold. The Group has well-established

consultation and negotiating arrangements with established trade

unions. Employees are encouraged to acquire shares in the Group

through participation in the savings-related share option scheme

(‘Sharesave Scheme’).


DIRECTORS' REPORT CONTINUED

Details of the Scheme are set out in Note 26 to the financial

statements.

Share capital: The authorised and issued share capital of the

Company together with details of movements in the Company’s

issued share capital during 2014/15 are shown in Note 24 to the

financial statements at page 106. As at the date of this report,

137,767,777 ordinary 25p shares were in issue and fully paid with

an aggregate nominal value of £34,441,944.

Rights and obligations attaching to shares: The holders of

ordinary shares are entitled to receive the Company’s Reports and

Accounts; to attend and speak at General Meetings of the

Company; to appoint proxies and to exercise voting rights. To be

effective, electronic and paper proxy appointments and voting

instructions must be received at the Company’s registered office,

or such other place in the United Kingdom specified in the relevant

notice of meeting, not later than 48 hours before a General

Meeting. None of the shares carry any special rights with regard to

control of the Company. There are no known arrangements under

which financial rights are held by a person other than the holder of

the shares and no known agreements on restrictions on share

transfers or on voting rights. Shares acquired through Company

share schemes and plans rank pari passu with the shares in issue

and have no special rights.

Transfer of shares: Subject to applicable statutes and

regulations, there are no restrictions on transfer or limitations on

the holding of any class of shares and no requirements for prior

approval of any transfers.

Shareholder waiver of dividends: The Company established an

employee benefit trust in 1996 which in certain circumstances

holds shares in connection with the Group’s employee share

incentive plans. As the registered holder, the voting rights in the

shares are exercisable by the trustee. However, the trustee does

not ordinarily exercise those rights and waives its entitlement to

dividends.

Issue of shares: At the AGM on 15 July 2014, shareholders

renewed the authority for the Board under the Articles to exercise

all powers of the Company to allot relevant securities up to an

aggregate nominal amount of £22,786,896.

Purchase of own shares: At the AGM on 15 July 2014,

shareholders granted the Company authority to make market

purchases of up to 13,672,275 of its issued ordinary shares of 25

pence each, provided that: the minimum price which may be paid

for any such ordinary share is 25 pence (exclusive of expenses and

appropriate taxes); the maximum price (exclusive of expenses and

appropriate taxes) which may be paid for any such ordinary share

shall be not more than 5% above the average of the middle market

prices for an ordinary share in the Company, as taken from the

London Stock Exchange Daily Official List for the five business

days immediately preceding the date of purchase. The Company

did not exercise this authority during the year and made no market

purchases. Except in relation to a purchase of ordinary shares, the

contract for which was concluded before this authority expires and

which will or may be executed wholly or partly after such expiry,

the authority granted shall expire at the conclusion of this year’s

AGM. The Directors believe it advisable to seek renewal of both of

the above-mentioned authorities or replacement of them with

suitable alternatives, annually at the AGM. Approval will be sought

from the shareholders at this year’s AGM to renew the authorities

for a further year.

Substantial shareholdings: As at 31 March 2015, the Company

had been notified in accordance with the Disclosure and

Transparency Rules issued by the Financial Services Authority of

the following interests of 3% or more in the Company’s existing

issued ordinary share capital.

Notified No. of

shares

Notified

percentage of

issued share

capital

Invesco Limited 6,934,355 5.007

UBS Investment Bank/UBS Group AG 5,333,753 3.890

During the period 1 April 2015 to 20 May 2015 the Company has

been notified by UBS Investment Bank/UBS Group AG of a holding

of 3.996% of the Company’s issued share capital.

Articles of association: Changes to the Articles must be

approved by the shareholders in accordance with the legislation in

force from time to time.

Significant agreements – change of control: A change of

control of the Company following a takeover bid may cause a

number of agreements to which the Company or its subsidiaries

are party, to take effect, alter or terminate. The agreements that are

considered significant are as follows:

Borrowing facilities – Non-compliance with the change of control

clauses in the Group’s funding arrangements, or failure to reach

agreement with the parties on revised terms, would require any

acquirer to put in place replacement facilities.

Supply agreements – Certain supply agreements contain

provisions whereby on a change of control of the Group, they may

be terminable. Accordingly, a change of control of the Group could

result in the need for the Group to source alternative supply for

certain materials.

No compensation for loss of office: The Company does not

have agreements with any Director or employee that would provide

compensation for loss of office or employment resulting from a

takeover, except that provisions of the Company’s share schemes

and plans may cause options and awards granted to employees

under such schemes and plans to vest on a takeover.

Pensions: The Company employs only the Executive Directors.

Most employees in the Group are employed by the Company’s

main subsidiary, Dairy Crest Limited. Relevant companies within

the Group became subject to the automatic enrolment regulations

on 1 April 2013. Depending on their grade, effective from 1 April

2013 employees either enter the auto enrolled pension

arrangements for the Group which are provided by Zurich or into

the Group’s defined contribution pension scheme also provided by

Zurich. The Group’s defined benefit pension fund is closed to

future accrual and is now in run-off. It remains under the control of

a corporate trustee, Dairy Crest Pension Trustees Limited, the

board of which comprises four directors nominated by Dairy Crest

Limited and three directors elected by all members. Its assets are

held separately from those of the Group and can only be used in

accordance with the rules of the fund.


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Greenhouse gas emissions: The Company is required to state

the annual quantity of emissions in tonnes of carbon dioxide

equivalent from activities for which the Group is responsible,

including the combustion of fuel and the operation of any facility.

Details of our emissions during the year ended 31 March 2015 and

the actions which the Group has taken to reduce them are set out

on pages 23 to 27 and form part of the Directors’ report

disclosures.

Directors’ responsibility statements: The responsibility

statements required under Disclosure and Transparency Rule 4.1

are set out on page 66.

Annual general meeting: The AGM will be held at Eversheds

LLP, One Wood Street, London, EC2V 7WS on Tuesday, 14 July

2015 at 12.00 pm. The Notice convening the meeting will be issued

separately, together with details of the business to be considered

and explanatory notes relating to each of the resolutions being

proposed.

Auditor: Ernst & Young LLP has expressed its willingness to

continue as Auditor of the Company. A resolution to reappoint

Ernst & Young LLP as the Company’s Auditor will be put to the

forthcoming AGM.

The Directors’ Report from pages 63 to 65 has been approved by

the Board and is signed on its behalf by

Robin Miller Company Secretary & General Counsel

20 May 2015


The Directors are responsible for preparing the Annual Report and

the Group’s and Company’s financial statements in accordance

with applicable United Kingdom law and International Financial

Reporting Standards (‘IFRSs’) as adopted by the European Union.

Under company law the Directors must not approve the Group’s

and Company’s financial statements unless they are satisfied that

they give a true and fair view of the state of affairs of the Group and

Company and of the profit or loss of the Group and Company for

that period. In preparing the financial statements the Directors are

required to:

present fairly the financial position, financial performance and

cash flows of the Group and Company;

select suitable accounting policies in accordance with IAS 8,

‘Accounting Policies, Changes in Accounting Estimates and

Errors’ and then apply them consistently;

present information, including accounting policies, in a manner

that provides relevant, reliable, comparable and understandable

information;

provide additional disclosures when compliance with the specific

requirements in IFRSs as adopted by the European Union is

insufficient to enable users to understand the impact of

particular transactions, other events and conditions on the

financial position of the Group and Company and performance

of the Group;

state that the Group and Company have complied with IFRSs,

subject to any material departures disclosed and explained in

the financial statements; and

make judgements and estimates that are responsible and

prudent.

The Directors are responsible for keeping adequate accounting

records that are sufficient to show and explain the Group’s and

Company’s transactions and disclose with reasonable accuracy at

any time the financial position of the Group and of the Company

and enable them to ensure that the financial statements comply

with the Companies Act 2006 and Article 4 of the IAS Regulation.

They are also responsible for safeguarding the assets of the Group

and of the Company and hence for taking reasonable steps for the

prevention and detection of fraud or other irregularities.

The Directors are responsible for preparing the Directors’ Report,

the Directors’ Remuneration Report and the Corporate

Governance Statement in accordance with the Companies Act

2006 and applicable regulations, including the requirements of the

Listing Rules and the Disclosure and Transparency Rules.

The Directors are also responsible for the maintenance and

integrity of the corporate and financial information included on the

Group’s website. Legislation in the United Kingdom governing the

preparation and dissemination of financial statements may differ

from legislation in other jurisdictions.

DTR 4.1 Statement

Each of the Directors, the names and functions of whom are set

out on pages 32 to 33 confirms that to the best of his/her

knowledge, they have complied with the above requirements in

preparing the Group’s and Company’s financial statements in

accordance with applicable accounting standards and that the

financial statements give a true and fair view of the assets, liabilities

and financial position of the Group and Company and of the

Group’s income statement and the Company’s profit for that

period. In addition, each of the Directors confirms that the

management report represented by the Directors’ Report includes

a fair review of the development and performance of the business

and the position of the Group and Company, together with a

description of the principal risks and uncertainties that it faces.

On behalf of the Board


Tom Atherton Group Finance Director

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RELATION

TO THE GROUP AND COMPANY FINANCIAL STATEMENTS


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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DAIRY CREST GROUP plc

Opinion on financial statements

In our opinion:

What we have audited

Respective responsibilities of directors and auditor

Our application of materiality


Scope of the audit of the financial statements

The scope of our audit

Our assessment of risks of material misstatement and

responses to those risks


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Area of focus Response Cross Reference to AR page/note

Accounting for promotional accruals, including the impact of revenue recognition

Assessing the carrying value of non-current assets

(New in 2015) Accounting for the conditional disposal of the Dairies operations

Classification of items as exceptional


Opinion on other matters prescribed by the Companies Act

2006

Matters on which we are required to report by exception

Alison Duncan


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2015 2014

Note

Before

exceptional

items

£m

Exceptional

items

£m Total

£m

Before

exceptional

items

£m

Exceptional

items

£m Total

£m

Group revenue 1 1,329.8 – 1,329.8 1,391.0 – 1,391.0

Operating costs 2,4 (1,279.1) (36.3) (1,315.4) (1,334.7) (10.2) (1,344.9)

Other income – property 3 17.6 – 17.6 18.2 – 18.2

Profit/(loss) on operations 68.3 (36.3) 32.0 74.5 (10.2) 64.3

Finance costs 5 (8.1) – (8.1) (9.9) (0.2) (10.1)

Other finance expense – pensions 20 (1.8) – (1.8) (0.3) – (0.3)

Share of associate’s net profit 14 – – – 0.3 – 0.3

Profit/(loss) before tax 58.4 (36.3) 22.1 64.6 (10.4) 54.2

Tax (expense)/credit 6 (8.2) 6.6 (1.6) (9.4) 4.0 (5.4)

Profit/(loss) from continuing operations 50.2 (29.7) 20.5 55.2 (6.4) 48.8

Profit from discontinued operations 29 – – – – 1.4 1.4

Profit for the year attributable to equity

shareholders

50.2 (29.7) 20.5

55.2 (5.0) 50.2

The prior year comparatives include discontinued operations that were a result of the disposal of the St Hubert business in August 2012 (see

Note 29). The post-tax profit relating to discontinued activities is further analysed in Note 29.

Earnings per share 2015 2014

Basic earnings per share

on profit for the year (pence) 8 15.0 36.8

Diluted earnings per share

on profit for the year (pence) 8 14.9 36.4


from continuing operations (pence) 8 15.0 35.8


from continuing operations (pence) 8 14.9 35.3

Adjusted basic earnings per share

from continuing operations (pence)* 8 38.0 40.8

Adjusted diluted earnings per share

from continuing operations (pence)* 8 37.7 40.3


from discontinued operations (pence) 8 – 1.0


from discontinued operations (pence) 8 – 1.0

Dividends 2015 2014

Proposed final dividend (£m) 7 21.6 21.0

Interim dividend paid (£m) 7 8.2 8.0

Proposed final dividend (pence) 7 15.7 15.4

Interim dividend paid (pence) 7 6.0 5.9

* Adjusted earnings per share calculations are presented to give an indication of the underlying operational performance of the Group. The calculations exclude exceptional

items, amortisation of acquired intangibles and pension interest in relation to the Group’s defined benefit pension scheme, the latter being dependent upon market

assumptions at 31 March each year.

CONSOLIDATED INCOME STATEMENTYear ended 31 March 2015


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended 31 March 2015

Note 2015

£m 2014

£m

Profit for the year 20.5 50.2

Other comprehensive income to be reclassified to profit and loss in subsequent years:

Cash flow hedges – reclassification adjustment for (losses)/gains in income statement (16.1) 20.0

Cash flow hedges – gains/(losses) recognised in other comprehensive income 15.0 (18.8)

Tax relating to components of other comprehensive income 6 0.2 (0.3)

(0.9) 0.9

Other comprehensive income not to be reclassified to profit and loss in subsequent years:

Remeasurement of defined benefit pension plans 20 4.3 (49.6)

Tax relating to components of other comprehensive income 6 1.7 8.7

6.0 (40.9)

Other comprehensive gain/(loss) for the year, net of tax 5.1 (40.0)

Total comprehensive gain for the year, net of tax 25.6 10.2

All amounts are attributable to owners of the parent.


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CONSOLIDATED AND PARENT COMPANY BALANCE SHEETSAt 31 March 2015

Consolidated Parent Company

Note 2015

£m 2014

£m 2015

£m 2014

£m

Assets

Non-current assets

Property, plant and equipment 10 328.5 288.6 – –

Goodwill 11 74.3 74.3 – –

Intangible assets 12 25.6 27.9 – –

Investments 13 0.5 0.3 482.8 482.1

Investment in associate using equity method 14 – 0.8 – –

Deferred consideration 14 – 1.4 – –

Deferred tax asset 6 – – 0.2 0.2

Financial assets – Derivative financial instruments 17 14.7 7.0 14.7 5.4

443.6 400.3 497.7 487.7

Current assets

Inventories 15 199.7 219.6 – –

Trade and other receivables 16 95.3 118.4 0.4 10.5

Financial assets – Derivative financial instruments 17 – 0.4 – –

Cash and short-term deposits 18 50.6 67.3 0.2 –

345.6 405.7 0.6 10.5

Total assets 1 789.2 806.0 498.3 498.2

Equity and Liabilities

Non-current liabilities

Financial liabilities – Long-term borrowings 19 (263.0) (179.7) (158.2) (144.2)

– Derivative financial instruments 19 (1.9) (6.2) (1.9) (6.2)

Retirement benefit obligations 20 (41.4) (57.7) – –

Deferred tax liability 6 (11.1) (11.4) – –

Deferred income 22 (6.2) (7.8) – –

(323.6) (262.8) (160.1) (150.4)

Current liabilities

Trade and other payables 21 (168.1) (218.3) (40.0) (3.8)

Financial liabilities – Short-term borrowings 19 – (26.5) – (25.3)

– Derivative financial instruments 19 (0.2) (2.0) – (2.0)

Current tax liability (2.8) (3.6) (0.1) (0.1)

Deferred income 22 (1.6) (1.7) – –

Provisions 23 (3.1) (1.7) – –

(175.8) (253.8) (40.1) (31.2)

Total liabilities (499.4) (516.6) (200.2) (181.6)

Shareholders’ equity

Ordinary shares 24 (34.4) (34.2) (34.4) (34.2)

Share premium 24 (79.8) (77.6) (79.8) (77.6)

Interest in ESOP 25 0.1 0.6 – –

Other reserves 25 (51.4) (52.3) (156.5) (156.1)

Retained earnings (124.3) (125.9) (27.4) (48.7)

Total shareholders’ equity (289.8) (289.4) (298.1) (316.6)

Total equity and liabilities (789.2) (806.0) (498.3) (498.2)


Tom Atherton Finance Director

The financial statements were approved by the directors on 20 May 2015.


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYYear ended 31 March 2015

Attributable to owners of the parent

2015

Ordinary

shares

£m

Share

premium

£m

Interest

in ESOP

£m

Other

reserves*

£m

Retained

earnings

£m

Total

Equity

£m

At 31 March 2014 34.2 77.6 (0.6) 52.3 125.9 289.4

Profit for the year – – – – 20.5 20.5

Other comprehensive gain/(loss):

Cash flow hedges – – – (1.1) – (1.1)

Remeasurement of defined benefit pension plan – – – – 4.3 4.3

Tax on components of other comprehensive income – – – 0.2 1.7 1.9

Other comprehensive gain/(loss) – – – (0.9) 6.0 5.1

Total comprehensive gain/(loss) – – – (0.9) 26.5 25.6

Issue of share capital 0.2 2.2 – – – 2.4

Exercise of options – – 0.5 – (0.6) (0.1)

Share-based payments – – – – 1.7 1.7

Equity dividends – – – – (29.2) (29.2)

At 31 March 2015 34.4 79.8 (0.1) 51.4 124.3 289.8

2014

At 31 March 2013 34.1 77.5 (0.6) 51.4 145.0 307.4

Profit for the year – – – – 50.2 50.2


Cash flow hedges – – – 1.2 – 1.2

Remeasurement of defined benefit pension plan – – – – (49.6) (49.6)

Tax on components of other comprehensive income – – – (0.3) 8.7 8.4

Other comprehensive gain/(loss) – – – 0.9 (40.9) (40.0)

Total comprehensive gain – – – 0.9 9.3 10.2

Issue of share capital 0.1 0.1 – – – 0.2

Shares acquired by ESOP – – (1.1) – – (1.1)

Exercise of options – – 1.1 – (1.4) (0.3)

Share-based payments – – – – 1.5 1.5

Equity dividends – – – – (28.5) (28.5)

At 31 March 2014 34.2 77.6 (0.6) 52.3 125.9 289.4

* Further details are provided in Note 25.


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PARENT COMPANY STATEMENT OF CHANGES IN EQUITYYear ended 31 March 2015

2015

Ordinary

shares

£m

Share

premium

£m

Capital

reserve

£m

Hedging

reserve

£m

Other

reserve*

£m

Retained

earnings

£m

Total

£m

At 31 March 2014 34.2 77.6 142.7 (0.6) 14.0 48.7 316.6

Profit for the year – – – – – 8.3 8.3


Cash flow hedges – – – (0.4) – – (0.4)

Tax on components of other comprehensive

income – – – 0.1 – – 0.1

Other comprehensive loss – – – (0.3) – – (0.3)

Total comprehensive gain/(loss) – – – (0.3) – 8.3 8.0

Issue of share capital 0.2 2.2 – – – – 2.4

Share-based payments – – – – 0.7 (0.4) 0.3

Equity dividends – – – – – (29.2) (29.2)

At 31 March 2015 34.4 79.8 142.7 (0.9) 14.7 27.4 298.1

2014

At 31 March 2013 34.1 77.5 142.7 (1.1) 12.8 52.2 318.2

Profit for the year – – – – – 24.7 24.7


Cash flow hedges – – – 0.7 – – 0.7

Tax on components of other comprehensive

income – – – (0.2) – – (0.2)

Other comprehensive gain – – – 0.5 – – 0.5

Total comprehensive gain – – – 0.5 – 24.7 25.2

Issue of share capital 0.1 0.1 – – – – 0.2

Share-based payments – – – – 1.2 0.3 1.5

Equity dividends – – – – – (28.5) (28.5)

At 31 March 2014 34.2 77.6 142.7 (0.6) 14.0 48.7 316.6

* Other reserve represents the share-based payment credit in respect of amounts capitalised as investments (see Note 13).


CONSOLIDATED AND PARENT COMPANY STATEMENT OF CASH FLOWSYear ended 31 March 2015


Note 2015

£m 2014

£m 2015

£m 2014

£m

Cash generated from/(used in) from operations 32 35.3 (13.8) – –

Interest paid (10.5) (14.0) – –

Taxation repaid – 2.1 – –

Net cash inflow/(outflow) from operating activities 24.8 (25.7) – –

Cash flow from investing activities

Capital expenditure (80.1) (58.8) – –

Proceeds from disposal of property, plant and equipment 22.5 32.5 – –

Purchase of businesses and investments 29 (0.1) – – –

Sale of businesses 29 4.0 – – –

Amounts received from subsidiaries – – 54.4 172.9

Net cash (used in)/generated from investing activities (53.7) (26.3) 54.4 172.9

Cash flow from financing activities

Repayment and cancellation of loan notes (27.4) (159.4) (27.4) (159.4)

Net drawdown under revolving credit facilities 69.0 36.0 – –

Dividends paid 7 (29.2) (28.5) (29.2) (28.5)

Proceeds from issue of shares (net of issue costs) 24 2.4 0.2 2.4 0.2

Purchase of shares by ESOP – (1.4) – –

Finance lease repayments 33 (1.8) (3.7) – –

Net cash generated/(used in) financing activities 13.0 (156.8) (54.2) (187.7)

Net (decrease)/increase in cash and cash equivalents (15.9) (208.8) 0.2 (14.8)

Cash and cash equivalents at beginning of year 33 67.3 276.1 – 14.8

Exchange impact on cash and cash equivalents 33 (0.8) – – –

Cash and cash equivalents at end of year 33 50.6 67.3 0.2 –

Net debt at end of year 33 (198.7) (142.2) (144.1) (171.7)


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ACCOUNTING POLICIESYear ended 31 March 2015

Basis of preparation

The consolidated and Company financial statements have been

prepared on a historical cost basis. They are presented in sterling

and all values are rounded to the nearest 0.1 million (£ million) except

where otherwise indicated.

The consolidated financial statements of Dairy Crest Group plc have

been prepared in accordance with IFRS as adopted by the

European Union (‘EU’). The separate Company financial statements

have been prepared in accordance with IFRS as adopted by the EU

and as applied in accordance with the provisions of the Companies

Act 2006. The Company has taken advantage of the exemption

provided under section 408 of the Companies Act 2006 not to

publish its individual income statement and related notes.

Having reviewed and taken into account Going Concern and

Liquidity Risk: Guidance for Directors of UK Companies 2009,

published by the Financial Reporting Council in October 2009, the

Directors are satisfied that the Company and the Group have

adequate resources to continue operating for the foreseeable future.

For this reason they continue to adopt the going concern basis in

preparing the financial statements. See the Going Concern

Statement on page 63 of the Directors’ Report.

Areas of estimation

The key sources of estimation uncertainty that have a significant risk

of causing material adjustments to the carrying amounts of assets

and liabilities within the next financial year are (i) the measurement of

the impairment of goodwill, intangible assets and property, plant and

equipment (ii) the measurement of defined benefit pension scheme

assets and obligations (iii) the calculation of promotional discount

accruals and (iv) the estimation of tax costs in France in relation to

the sale of St Hubert.

(i) The Group determines whether goodwill is impaired on an annual

basis and this requires an estimation of the value in use of the

cash-generating units to which goodwill is allocated. The

assessment of value in use is compared to the carrying value of

goodwill. This requires estimation of future cash flows and the

selection of a suitable discount rate. See Note 11.

The Group tests whether intangible assets, property, plant and

equipment are impaired where there are indications that there is a

risk of impairment. This requires an estimation of the value in use of

the cash-generating units in which these assets reside. The

assessment of value in use is compared to the carrying value of

assets. This requires estimation of future cash flows and the

selection of a suitable discount rate.

In the year ended 31 March 2015, the Group tested the intangible

assets, property, plant and equipment of the Dairies cash-

generating unit for impairment due to indicators of impairment being

present. In assessing for impairment, consideration was taken of the

future cash flows on an ongoing basis and also the impact of the

potential disposal of the Dairies operations to create a risk weighted

value in use calculation of the cash-generating unit. Three key

assumptions in performing the test included the projected value and

timing of cash flows from property sales, the allocation of corporate

costs and the projected profit growth. The result of the test was that

no impairment was required; however the headroom was low and

therefore sensitive to the above assumptions. See Note 10.

(ii) The Group recognises and discloses its retirement benefit

obligation in accordance with the measurement and presentational

requirement of IAS 19 ‘Retirement Benefit Obligations’. The

calculations include a number of judgements and estimations in

respect of the expected rate of return on assets, the discount rate,

inflation assumptions, the rate of increase in salaries, and life

expectancy, amongst others. Changes in these assumptions can

have a significant effect on the value of the retirement benefit

obligation. See Note 20.

(iii) The Group accrues for agreed promotional funding. Accruals for

promotional funding are calculated based on an estimated

redemption rate of the promotion. The redemption rate used is

dependent on the promotional mechanic and considers known

historical data on the performance of that mechanic. Management

considers this to be an area of judgment which is dependent on the

customer mix and promotion mechanic.

(iv) The sale of St Hubert will result in tax payable in France both on

the chargeable gain on disposal and on dividend payments made to

the UK parent between 31 March 2012 and the date of disposal in

August 2012. An estimate has been made of the likely tax costs

resulting from these transactions however the final assessment has

yet to be agreed with the French tax authorities, which may result in

a change to the level of tax provisioning.

Areas of judgment

The key areas where judgment has been applied are (i) classification

of the Dairies operation (ii) the timing and nature of exceptional costs

and (iii) the judgment that for IFRS 8 purposes only one segment

should be reported on.

(i) On 6 November 2014, the Group announced the sale of its Dairies

operations to Müller, subject to approval of the relevant competition

authorities. The Dairies operation has not been classified as held for

sale at the balance sheet date because, due to it being conditional

upon CMA approval, it was not deemed to meet the “highly

probable” criteria under IFRS 5 ‘Non-current Assets Held for Sale

and Discontinued Operations’.

(ii) Items of a material, one-off nature, which result from a

restructuring of the business or some other event or circumstance

are disclosed separately in the consolidated income statement as

exceptional. Management consider this to be an area of judgment

due to the assumptions made around the timing and nature of

exceptional costs.

(iii) Following the restructure of the Group to a single operating unit in

2013, management has judged that the Group comprises one

segment under IFRS 8 ‘Operating Segments’. However, certain

product group information is provided voluntarily to assist the user of

the accounts.

Further analysis of the key sources of estimation uncertainty and

sensitivities are included in the relevant notes to the financial

statements.

Changes in accounting policies

The following accounting standards and interpretations became

effective for the current reporting period:

International Accounting Standards (IAS/IFRSs)

IAS 16 – Improvement to IAS 16: Property, Plant and Equipment

(effective 1 July 2014)

IAS 38 – Improvement to IAS 38: Intangible Assets (effective 1 July

2014)

IAS 24 – Improvement to IAS 24: Related Party Disclosure (effective

1 July 2014)

IFRS 13 – Improvement to IFRS 13: Fair Value Measurement

(effective 1 July 2014)


ACCOUNTING POLICIES CONTINUED

International Financial Reporting Interpretations Committee

(IFRIC)

IFRIC 21 – Levies (effective 13 June 2014)

The application of these standards has had no material impact on

the net assets, results and disclosures of the Group in the year

ended 31 March 2015.

The IASB and IFRIC have issued the following standards and

interpretations (with an effective date after the date of these financial

statements):

IFRS 15 – Revenue from Contracts with Customers

IFRS 9 – Financial Instruments

The Directors do not anticipate that the adoption of these standards

and interpretations will have a material impact on the Group’s

financial statements in the period of initial application.

Consolidation

The Group financial statements consolidate the accounts of Dairy

Crest Group plc and its subsidiaries drawn up to 31 March each

year using consistent accounting policies. All intercompany balances

and transactions, including unrealised profits and losses arising from

intra-group transactions, have been eliminated in full.

Subsidiaries acquired during the year are consolidated from the date

on which control is transferred to the Group. The separable net

assets, both tangible and intangible, of the newly acquired subsidiary

undertakings are incorporated into the financial statements on the

basis of the fair value as at the effective date of control, if appropriate.

Results of subsidiary undertakings disposed of during the financial

year are included in the financial statements up to the effective date

of disposal. Where a business component representing a separate

major line of business is disposed of, or classified as held for sale, it

is classified as a discontinued operation. The post-tax profit or loss

of the discontinued operations is shown as a single amount on the

face of the income statement, separate from the other results of the

Group.

Interest in associates

The Group’s investments in associates are accounted for under the

equity method of accounting. Associates are entities over which the

Group exerts significant influence. The Company and its associates

use consistent accounting policies. The investment in associates are

carried in the balance sheet at initial fair value plus post-acquisition

changes in the Group’s share of net assets, less any impairment in

value and any distributions received. The consolidated income

statement reflects the share of the post-tax results of associates.

Where there has been a change recognised directly in the associates’

other comprehensive income, the Group recognises its share of

such changes and discloses this, where applicable in other

comprehensive income.

Foreign currency translation

The functional and presentational currency of Dairy Crest Group plc

and its subsidiaries is Sterling (£).

Transactions in foreign currency are initially recorded in the functional

currency rate ruling at the date of the transaction. Monetary assets

and liabilities denominated in foreign currencies are translated into

Sterling at the balance sheet date. Exchange differences on

monetary items are taken to the income statement, except where

recognised in other comprehensive income as qualifying cash flow

hedges and qualifying net investment hedges.

On consolidation, assets and liabilities of foreign subsidiaries are

translated into sterling at year end exchange rates. The results of

foreign subsidiaries are translated into sterling at average rates of

exchange for the year (being an approximation of actual exchange

rates). Exchange differences arising from the retranslation of the net

investment in foreign subsidiaries at year end exchange rates, less

exchange differences on borrowings, which finance or provide a

hedge against those undertakings are taken to a separate

component of equity as long as IFRS hedge accounting conditions

are met. Exchange differences relating to foreign currency

borrowings that provide a hedge against a net investment in a

foreign entity remain in equity until the disposal of the net investment,

at which time they are recognised in the consolidated income

statement.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated

depreciation and any impairment losses. Cost comprises the

purchase price and any costs directly attributable to bringing the

asset to the location and condition necessary for it to be capable of

operating in the manner intended by management. Depreciation is

calculated to write off the cost (less residual value) of property, plant

and equipment, excluding freehold land, on a straight-line basis over

the estimated useful lives of the assets as follows:

Freehold buildings: 25 years

Leasehold land and buildings: 25 years or, if shorter, the period

of the lease

Office equipment: 4 to 6 years

Factory plant and equipment: 6 to 20 years

Vehicles: 4 to 10 years

The carrying value of property, plant and equipment is reviewed for

impairment when events or changes in circumstances indicate that

the carrying value may not be recoverable. If the carrying value

exceeds the estimated recoverable value, the asset is written down

to its recoverable amount. The recoverable amount of plant and

equipment is the greater of the fair value less costs to sell or value in

use. In assessing value in use, the estimated future cash flows are

discounted to their present value using a pre-tax discount rate that

reflects current market assessments of the time value of money and

the risks specific to the asset. For an asset that does not generate

largely independent cash flows, the recoverable amount is

determined for the cash-generating unit to which the asset belongs.

Impairment losses are charged to the consolidated income

statement.

An item of property, plant and equipment is derecognised upon

disposal or when no future economic benefits are expected to arise

from the continued use of the asset. Any gain or loss arising on

derecognition of the asset is included in the consolidated income

statement in the year that it is derecognised.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction

or production of an asset that necessarily takes a substantial period

of time to get ready for its intended use are capitalised as part of the

cost of the respective assets.

All other borrowing costs are recognised as an expense in the

period they occur.


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Investments

The Company recognises its investments in subsidiaries at cost

being the fair value of consideration paid, less provisions for

impairment where appropriate.

Business Combinations and Goodwill

The cost of an acquisition is measured as the aggregate of the

consideration transferred, measured at acquisition date fair value,

and the amount of any non-controlling interest in the acquiree. The

choice of measurement of non-controlling interest, either at fair value

or at the proportionate share of acquiree’s identifiable net assets will

be determined on a transaction by transaction basis. Acquisition

costs incurred are expensed in the income statement.

Goodwill on acquisition is initially measured at cost being the cost of

the acquisition (see above) less net identifiable amounts of the assets

acquired and the liabilities assumed in exchange for the business

combination.

Following initial recognition, goodwill is measured at cost less any

accumulated impairment losses. Goodwill is reviewed for impairment

annually or more frequently if events or changes in circumstances

indicate that the carrying value may be impaired. All goodwill was

tested for impairment at the time of transition to IFRS and no

impairment was identified.

Goodwill recognised under UK GAAP prior to the date of transition

to IFRS is stated at the net book value as at this date and is not

subsequently amortised.

As at the acquisition date, any goodwill acquired is allocated to the

cash-generating unit or groups of cash-generating units expected to

benefit from the combination’s synergies. Impairment is determined

by assessing the recoverable amount of the cash-generating unit to

which the goodwill relates. Where the recoverable amount of the

cash-generating unit is less than the carrying amount, an impairment

loss is recognised. Where goodwill forms part of a cash-generating

unit and part of the operation within that unit is disposed of, the

goodwill associated with the operation disposed of is included in the

carrying amount of the operation when determining the gain or loss

on disposal of the operation. Goodwill disposed of in this

circumstance is measured on the basis of the relative values of the

operation disposed of and the portion of the cash-generating unit

retained.

The Group’s cash-generating units, for the purpose of considering

goodwill, are ‘Dairies’ (fully impaired), ‘Spreads’, ‘MH Foods’ and

‘Cheese’. These represent the lowest level at which goodwill is

monitored.

Goodwill arising on acquisitions before 1 April 1998 has been

charged against the merger reserve and will remain set off against

reserves even if the related investment becomes impaired or the

business sold.

Intangible assets

Intangible assets acquired as part of an acquisition of a business are

capitalised at fair value separately from goodwill if the fair value can

be measured reliably on initial recognition and the future expected

economic benefits flow to the Group. Following initial recognition, the

carrying amount of an intangible asset is its cost less any

accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite

or indefinite. Currently, all the Group’s intangible assets have finite

useful lives and are amortised over 3 to 15 years on a straight line

basis. Acquired intangible assets comprise acquired brands,

principally the Frylight brand which was considered to have a useful

life of 15 years at the date of acquisition.

Useful lives are also examined on an annual basis and adjustments,

where applicable, are made on a prospective basis.

Intangible assets generated internally comprise software

development expenditure. Software development is carried at cost

less accumulated amortisation and is amortised over four to seven

years on a straight line basis. Internally generated intangible assets

that are not yet available for use are tested for impairment annually

either individually or at the cash-generating unit level or more

frequently if events or changes in circumstances indicate that the

carrying value may be impaired.

Research and development

Expenditure on research is written off as incurred. Development

expenditure is also written off as incurred unless the future

recoverability of this expenditure can reasonably be assured as

required by IAS 38 ‘Intangible Assets’.

Recoverable amount of non-current assets

At each reporting date, the Group assesses whether there is any

indication that an asset may be impaired. Where an indicator of

impairment exists, the Group makes a formal estimate of its

recoverable amount. Where the carrying amount of an asset

exceeds its recoverable amount the asset is considered impaired

and is written down to its recoverable amount. The recoverable

amount is the higher of an asset’s or cash-generating unit’s fair value

less costs to sell and its value in use and is determined for an

individual asset, unless the asset does not generate cash inflows

that are largely independent of those from other assets or groups of

assets.

Inventories

Inventories are stated at the lower of cost and net realisable value.

Cost includes the purchase price of raw materials (on a first in first

out basis), direct labour and a proportion of manufacturing

overheads based on normal operating capacity incurred in bringing

each product to its present location and condition. Net realisable

value is the estimated selling price in the ordinary course of business

less estimated costs of completion and selling costs.

Trade and other receivables

Trade and other receivables are recognised and carried at original

invoice amount less an allowance for any uncollectable amounts. An

estimate for doubtful debts is made when collection of the full

amount is no longer probable. Bad debts are written off when

identified.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and

short-term deposits with an original maturity of three months or less.

For the purposes of the consolidated cash flow statement, cash and

cash equivalents consist of cash and cash equivalents as defined

above, net of bank overdrafts.

Interest bearing loans

Interest bearing loans and borrowings are initially recognised at the

fair value net of issue costs associated with the borrowing. After

initial recognition, interest-bearing loans and borrowings are

subsequently measured at amortised cost using the effective

interest method. Amortised cost is calculated by taking into account

any issue costs, and any discount or premium on settlement. Gains

and losses are recognised in the Consolidated Income Statement

when the liabilities are derecognised.



Net debt

The Group and Company define net debt as interest bearing loans

and borrowings and finance leases less cash and cash equivalents.

The calculation of net debt excludes the fair value of derivative

financial instruments with the exception of cross currency swaps to

fix foreign currency debt in Sterling where they are designated as

cash flow hedges. In this case the fixed Sterling debt, not the

underlying foreign currency debt retranslated, is included in net debt.

It includes any cash or borrowings included within disposal groups

classified as held for sale and excludes unamortised upfront facility

fees.

Retirement benefit obligations

The Group operates two types of pension arrangements, a defined

benefit scheme and a defined contribution scheme.

Defined benefit scheme

The net asset or liability recognised in the balance sheet in respect

of the defined benefit pension scheme is the fair value of scheme

assets less the present value of the defined benefit obligation at the

balance sheet date as adjusted for unrecognised past service cost.

Any asset resulting from the calculation is limited to past service

cost, plus the present value of available refunds and reductions in

future contributions to the scheme. Where the Group is considered

to have a contractual obligation to fund the scheme above the

accounting value of the liabilities, an onerous obligation is

recognised as an unrecoverable notional surplus. The defined

benefit obligation is calculated annually by independent actuaries

using the projected unit credit method.

Actuarial gains and losses arising from experience adjustments and

changes in actuarial assumptions are recognised in full to the

statement of comprehensive income as they arise.

The Company has closed its defined benefit scheme and therefore

no current service costs are required to be charged to income

statement. Past service costs are recognised in the income

statement at the earlier of the date of the plan amendment or

curtailment, and the date that the Group recognises related

restructuring costs.

Scheme administration costs that are not directly related to

investment activities are charged to the income statement.

Administration costs that are directly related to investment are

recognised as part of the re-measurement exercise through the

Statement of Comprehensive Income.

The net interest charge is calculated by applying the discount rate to

the net defined benefit liability or asset.

Defined contribution scheme

These pension arrangements do not constitute a future obligation to

the Group. Members of these schemes will contribute a percentage

of their salary into the scheme and the Company will pay an

additional amount into the scheme. The size of an individual’s

pension on retirement is based on the performance of the asset

portfolio and is not linked to salary. Company contributions to the

scheme are charged to the income statement in the same period as

services are rendered by the relevant employee.

Share-based payments

Equity-settled performance payments

The Group and Company have issued equity instruments for which

they receive services from employees in consideration for these

equity instruments. Equity-settled share-based payment schemes

are measured at fair value at the grant date using an appropriate

pricing model. In valuing equity-settled transactions, no account is

taken of any service and performance (vesting conditions), other

than performance conditions linked to the price of the shares of the

Company (market conditions). Any other conditions which are

required to be met in order for an employee to become fully entitled

to an award are considered to be non-vesting conditions. Like

market performance conditions, non-vesting conditions are taken

into account in determining the grant date fair value.

The cost of equity-settled transactions with employees is measured

by reference to the fair value and is recognised as an expense over

the vesting period, which ends on the date on which the relevant

employees became fully entitled to the award. At each balance sheet

date before vesting, the cumulative expense is calculated;

representing the extent to which the vesting period has expired and

management’s best estimate of the number of equity instruments

that will ultimately vest. The movement in cumulative expense since

the previous balance sheet date is recognised in the income

statement, with a corresponding entry in equity.

No expense is recognised for awards that do not ultimately vest,

except for awards where vesting is conditional upon a market or

non-vesting condition, which are treated as vesting irrespective of

whether or not the market or non-vesting condition is satisfied,

provided that all other performance or service conditions are

satisfied.

Where an equity-settled award is cancelled (including when a

non-vesting condition within the control of the entity or employee is

not met), it is treated as if it had vested on the date of cancellation,

and any cost not yet recognised in the income statement for the

award is expensed immediately.

Rights granted to employees of subsidiary undertakings over equity

instruments of the Company are treated as an investment in the

Company’s balance sheet.

Employees’ Share Ownership Plan (‘ESOP’)

The shares in the Company held by the Dairy Crest Employees’

Share Ownership Plan Trust to satisfy Long Term Incentive Share

Plan awards are presented as a deduction from equity in arriving at

shareholders’ equity. Consideration received from the sale of such

shares is also recognised in equity with no gain or loss recognised in

the consolidated income statement.

The Group and Company have not adopted the exemption to apply

IFRS 2 ‘Share-based payments’ only to awards made after 7

November 2002.

Leased assets

Assets acquired under finance leases, which transfer to the Group

substantially all the risks and benefits incidental to ownership of the

leased item, are capitalised at the inception of the lease at fair value

of the leased asset or, if lower, the present value of the minimum

lease payments. The net present value of future lease rentals is

included as a liability on the balance sheet. The interest element of

lease rentals is charged to the income statement in the year. Leases

where the lessor retains substantially all the risks and benefits of

ownership of the asset are classified as operating leases. Operating

lease rentals are charged to the income statement on a straight-line

basis over the lease term.


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Revenue

Revenue on sale of food and dairy products is recognised on

delivery. Revenue comprises the invoiced value for the sale of goods

net of value added tax, rebates and discounts and after eliminating

sales within the Group.

Discounts comprise mainly promotional accruals and overriding

discounts. The Group accrues against agreed promotional funding

and agreed customer terms. The redemption rate used is dependent

on the promotional mechanic and considers known historical data

on the performance of that mechanic and is adjusted for actual

performance. The overriding discounts are calculated as a

proportion of the level of customer sales in the period.

Dividend income is recognised when the Company’s right to receive

payment is established.

Other income

Other income comprises the profit on disposal of closed depots.

Exceptional items

Certain items are recorded separately in the income statement as

exceptional. Only items of a material, one-off nature, which result

from a restructuring of the business or some other event or

circumstance, are disclosed in this manner in order to give a better

understanding of the underlying operational performance of the

Group. The profits arising on disposal of closed sites, other than as a

result of dairies depot rationalisation, are reported within exceptional

items.

Government and other grants

Government grants are initially recognised at their fair value where

there is reasonable assurance that the grant will be received and all

attaching conditions will be complied with. When the grant relates to

an expense item, it is recognised as income over the periods

necessary to match the grant on a systematic basis to the costs that

it is intended to compensate. Where the grant relates to an asset,

the fair value is credited to a deferred income account and is

released to the income statement over the expected useful life of the

relevant asset in equal annual installments.

Income tax

Current tax assets and liabilities are measured at the amount

expected to be recovered from or paid to the taxation authorities,

based on tax rates and laws that are enacted or substantively

enacted at the balance sheet date.

Deferred income tax is provided on all temporary differences at the

balance sheet date between the tax bases of assets and liabilities

and their carrying amounts for financial reporting purposes, except

as indicated below.

Deferred income tax liabilities are recognised for all taxable

temporary differences except:

where the deferred income tax liability arises from initial

recognition of goodwill or the initial recognition of an asset or

liability in a transaction that is not a business combination and, at

the time of the transaction, affects neither the accounting profit

nor taxable profit or loss; and

in respect of taxable temporary differences associated with

investments in subsidiaries, associates and interests in joint

ventures, where the timing of the reversal of the temporary

differences can be controlled and it is probable that the temporary

differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible

temporary differences, carry-forward of unused tax assets and

unused tax losses, to the extent that it is probable that taxable profit

will be available against which the deductible temporary differences,

the carry-forward of unused tax assets and unused tax losses can

be utilised except:

where the deferred income tax asset relating to the deductible

temporary difference arises from the initial recognition of an asset

or liability in a transaction that is not a business combination and,

at the time of the transaction, affects neither the accounting profit

nor taxable profit or loss; and

in respect of deductible temporary differences associated with

investments in subsidiaries, associates and interests in joint

ventures, deferred tax assets are only recognised to the extent

that it is probable that the temporary differences will reverse in the

foreseeable future and taxable profit will be available against

which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at

each balance sheet date and reduced to the extent that it is no

longer probable that sufficient taxable profit will be available to allow

all or part of the deferred income tax asset to be utilised. Deferred

income tax assets and liabilities are measured at the tax rates that

are expected to apply in the year when the asset is realised or the

liability is settled, based on tax rates (and tax laws) that have been

enacted or substantively enacted at the balance sheet date.

Deferred income tax assets and liabilities are offset only if a legal

enforcement right exists to set off current tax assets against current

tax liabilities, the deferred income taxes relate to the same taxation

authority and that authority permits the Group to make a single net

payment.

Income tax is charged or credited to other comprehensive income if

it relates to items that are charged or credited to other

comprehensive income. Similarly, income tax is charged or credited

directly to equity if it relates to items that are credited or charged

directly to equity. Otherwise income tax is recognised in the income

statement.

Financial assets

The Group and Company classifies financial assets that are within

the scope of IAS 39 as:

financial assets at fair value through income statement;

loans and receivables;

held-to-maturity investments; or

available-for-sale financial assets, as appropriate.

The Group and Company determines the classification of financial

assets at initial recognition and re-evaluates this designation at each

financial year-end. When financial assets are recognised initially, they

are measured at fair value. The Group and Company currently hold

only loans and receivables.

Derivative instruments

The Group and Company use derivative financial instruments such

as forward currency contracts, cross-currency swaps and interest

rate swaps to hedge its risks associated with interest rate and

foreign currency fluctuations. Such derivative financial instruments

are initially recognised at fair value and subsequently re-measured to

fair value at each balance sheet date.

Neither the Group nor the Company has entered into any fair value

hedges during the year.


Cash flow hedges

In relation to cash flow hedges which meet the conditions for hedge

accounting, the portion of the gain or loss on the hedging instrument

that is determined to be an effective hedge is recognised directly in

other comprehensive income and the ineffective portion is

recognised in the income statement.

When the hedged firm commitment (in relation to foreign exchange

exposure) or the highly probable forecast transactions results in the

recognition of a non-monetary asset or a liability, then, at the time

the asset or liability is recognised, the associated gains or losses

that had previously been recognised in other comprehensive income

are included in the initial measurement of the acquisition cost or

other carrying amount of the asset or liability. For all other cash flow

hedges, the gains or losses that are recognised in other

comprehensive income are transferred to the income statement in

the same year in which the hedged item affects the net profit and

loss, for example when the future sale actually occurs, interest

payments are made or when debt matures. For derivatives that do

not qualify for hedge accounting, any gains or losses arising from

changes in fair value are taken directly to the income statement for

the year.

Fair value measurement

The Group measures financial instruments at fair value at each

balance sheet date. Fair value is the price that would be received to

sell an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date. The fair

value measurement is based on the presumption that the

transaction to sell the asset or transfer the liability takes place either:

In the principal market for the asset or liability, or

In the absence of a principal market, in the most advantageous

market for the asset or liability

The principal or the most advantageous market must be accessible

to by the Group. The fair value of an asset or a liability is measured

using the assumptions that market participants would use when

pricing the asset or liability, assuming that market participants act in

their economic best interest.

A fair value measurement of a non-financial asset takes into account

a market participant’s ability to generate economic benefits by using

the asset in its highest and best use or by selling it to another market

participant that would use the asset in its highest and best use. The

Group uses valuation techniques that are appropriate in the

circumstances and for which sufficient data are available to measure

fair value, maximising the use of relevant observable inputs and

minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed

in the financial statements are categorized within the fair value

hierarchy, described as follows, based on the lowest level input that

is significant to the fair value measurement as a whole:

Level 1 — Quoted (unadjusted) market prices in active markets for

identical assets or liabilities

Level 2 — Valuation techniques for which the lowest level input

that is significant to the fair value measurement is directly or

indirectly observable

Level 3 — Valuation techniques for which the lowest level input

that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial

statements on a recurring basis, the Group determines whether

transfers have occurred between levels in the hierarchy by re-

assessing categorisation (based on the lowest level input that is

significant to the fair value measurement as a whole) at the end of

each reporting period.



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NOTES TO THE FINANCIAL STATEMENTS

1 Segmental analysis

IFRS 8 ‘Operating Segments’ requires operating segments to be determined based on the Group’s internal reporting to the Chief Operating

Decision Maker (‘CODM’). The CODM has been determined to be the Company’s Board members as they are primarily responsible for the

allocation of resources to segments and the assessment of performance of the segments.

The CODM’s primary focus for review and resource allocation is the Group as a whole. All revenue streams for the business are managed

centrally by functional teams (e.g. Demand, Supply, Procurement and Finance) that have responsibility for the whole of the Group’s product

portfolio. Although some discrete financial information is available to provide insight to the management team of the key performance drivers,

the product group profit is not part of the CODM’s review. Management has judged that the Group comprises one operating segment under

IFRS 8. As such, disclosures required under IFRS 8 for the financial statements are shown on the face of the Consolidated Income Statement

and Consolidated Balance Sheet.

Voluntary disclosure

To assist the readers of the financial statements, management considers it appropriate to provide voluntary disclosure on a basis consistent

with historical reporting of the product groups. In disclosing the product group profit for the year, certain assumptions have been made when

allocating resources which are now centralised at a group level.

Share of associate’s net profit forms a separate product group whose results are reviewed on a post-tax basis.

The Other product group comprises revenue earned from distributing product for third parties and certain central costs net of recharges to

the other product groups. Generally, central costs less external ‘other’ revenue are recharged back into the product groups such that their

result reflects the total cost base of the Group. ‘Other’ operating profit therefore is nil.

The results under the historic segmentation basis for the year ended 31 March 2015 and for the year ended 31 March 2014 and the

reconciliation of product group measures to the respective line items included in the financial information are as follows:

Year ended 31 March

Note

2015

£m

2014

£m

External revenue

Cheese 274.4 264.6

Spreads 170.0 177.4

Dairies 881.6 944.8

Other 3.8 4.2

Total product group external revenue 1,329.8 1,391.0

Product group profit*

Cheese 33.1 39.3

Spreads 33.8 16.8

Dairies 1.8 18.8

Share of associate's net profit 14 – 0.3

Total product group profit* 68.7 75.2

Finance costs 5 (8.1) (9.9)

Adjusted profit before tax** 60.6 65.3

Acquired intangible amortisation 2 (0.4) (0.4)

Exceptional items 4 (36.3) (10.4)

Other finance expense – pensions 20 (1.8) (0.3)

Group profit before tax 22.1 54.2

Total assets

Cheese 292.4 266.2

Spreads 158.5 156.7

Dairies 229.8 268.5

Investments and share of associate 0.5 2.5

Other 42.7 37.4

Total product group 723.9 731.3

Unallocated assets 65.3 74.7

Total assets 789.2 806.0

* Profit on operations before exceptional items and amortisation of acquired intangibles.

** Before exceptional items, amortisation of acquired intangibles and pension interest.


NOTES TO THE FINANCIAL STATEMENTS CONTINUED

Year ended 31 March

Note 2015

£m 2014

£m

Inter-product group revenue

Cheese 8.8 11.2

Spreads 3.5 3.1

Elimination (12.3) (14.3)

Total – –

Product group depreciation and amortisation (excluding amortisation of acquired intangible

assets)

Cheese 7.0 7.0

Spreads 2.6 2.5

Dairies 13.9 15.4

Other 7.1 7.0

Total 30.6 31.9

Product group additions to non-current assets

Cheese 55.7 12.4

Spreads 6.0 21.0

Dairies 16.1 25.9

Other 4.9 4.6

Total 82.7 63.9

Product group exceptional items

Cheese (3.4) –

Spreads (16.7) (3.8)

Dairies (12.2) (2.0)

Share of Associate 0.6 –

Unsegmented (4.6) (4.4)

Total exceptional operating costs 4 (36.3) (10.2)

1 Segmental analysis continued


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Interest income and expense are not included in the measure of product group profit. Group treasury has always been centrally managed

and external interest income and expense are not allocated to product groups. Further analysis of the Group interest expense is provided

in Note 5.

Tax costs are not included in the measure of product group profit.

Product group assets comprise property, plant and equipment, goodwill, intangible assets, inventories, receivables, assets in disposal group

held for sale and investments in associates using the equity method and deferred consideration but exclude cash and cash equivalents,

derivative financial assets and deferred tax assets. Other product group assets comprise certain property, plant and equipment that is not

reported in the principal groups.

Inter-product group revenue comprises the sale of finished Cheese and Spreads products to the Dairies product group on a cost plus basis

and is included in the product group result. Other inter-product group transactions principally comprise the transfer of cream from the Dairies

product group to the Spreads product group for the manufacture of butters. Cream transferred into Spreads is charged by reference to

external commodity markets and is adjusted regularly so as to reflect the costs that the Spreads product group would incur if it was a stand

alone entity. Revenue from inter-product group cream sales is not reported as revenue within the Dairies product group but as a reduction to

the Dairies product group’s input costs.

Product group depreciation and amortisation excludes amortisation of acquired intangible assets of £0.4 million (2014: £0.4 million) as these

costs are not charged in the product group result.

Product group additions to non-current assets comprise additions to goodwill, intangible assets and property, plant and equipment through

capital expenditure and acquisition of businesses.

Geographical information – continuing operations Year ended 31 March

External revenue attributed on basis of customer location 2015

£m 2014

£m

UK 1,257.5 1,330.9

Rest of world 72.3 60.1

Total revenue (excluding joint ventures) 1,329.8 1,391.0

Non-current assets* based on location

UK 428.4 390.8

Rest of world 0.5 1.1

Total 428.9 391.9

* Comprises property, plant and equipment, goodwill, intangible assets, investments and investment in associate.

The Group has two customers which individually represent more than 10% of revenue from continuing operations in the year ended 31 March

2015 (2014: two) with each customer accounting for £145.5 million and £177.3 million (2014: £152.1 million and £174.8 million) of revenue from

continuing operations being 11.0% and 13.4% (2014: 10.9% and 12.6%).

The product group analysis provided above is based upon groupings of similar products, namely Cheese, Spreads and Dairies, and therefore

the analysis of Group revenue by product and services is consistent with the revenue analysis presented above with the exception of non-milk

product sales in the Dairies product group, which amounted to £55.6 million (2014: £66.3 million).

1 Segmental analysis continued



2 Operating costs – continuing operations

Year ended 31 March 2015 Year ended 31 March 2014

Before

exceptional

items

£m

Exceptional

items

£m

Total

£m

Before

exceptional

items

£m

Exceptional

items

£m

Total

£m

Cost of sales 1,022.3 32.0 1,054.3 1,040.4 5.8 1,046.2

Distribution costs 183.9 – 183.9 207.8 – 207.8

Administrative expenses 72.9 4.3 77.2 86.5 4.4 90.9

1,279.1 36.3 1,315.4 1,334.7 10.2 1,344.9

Profit from continuing operations is stated after (charging)/crediting

Year ended

31 March

2015

£m

Year ended

31 March

2014

£m

Release of grants 1.7 1.7

Depreciation (27.4) (28.6)

Amortisation of intangibles – acquired (0.4) (0.4)

Amortisation of intangibles – internally generated (3.2) (3.3)

Realised exchange loss on early loan note repayment and translation of foreign currency balances (0.8) (0.8)

Operating lease rentals (26.5) (27.0)

Research and development expenditure (3.3) (3.8)

Cost of inventories recognised as an expense (1,022.3) (1,040.4)

Including: Write-down of inventories recognised as an expense (0.3) (0.6)

Remuneration paid to auditors

Year ended

31 March

2015

£m

Year ended

31 March

2014

£m

Fees payable to the Company’s auditors – audit of Company's annual accounts* 0.1 0.1

Fees payable to the Company’s auditors and its associates for other services:

Audit of the Company’s subsidiaries pursuant to legislation 0.3 0.3

Taxation services 0.1 0.1

Other services relating to corporate finance transactions 0.5 –

1.0 0.5

* £10,000 (2014: £10,000) of this relates to the Company.

Non-audit services carried out in the year include, acting as Reporting Accountant in relation to the disposal of the Group’s Dairies operations

and tax advisory services.

Fees paid to Ernst & Young LLP and its associates for non-audit services to the Company itself are not disclosed in the individual accounts of

the Company because Group financial statements are prepared which are required to disclose such fees on a consolidated basis.

Ernst & Young LLP are auditors of the Dairy Crest Group Pension Fund. Fees paid by the Fund for audit services are not included in the

above table.

3 Other income – property


Before

exceptional

items

£m

Exceptional

items

£m

Total

£m

Before

exceptional

items

£m

Exceptional

items

£m

Total

£m

Profit on disposal of depots 17.6 – 17.6 18.2 – 18.2

The Group continues to rationalise its Dairies operations as a result of the ongoing decline in doorstep volumes. This rationalisation includes

the closure of certain depots (the profit on which is shown above) and rationalisation of the ongoing Dairies operations. These activities

represent a fundamental part of the ongoing ordinary activities of the Dairies operations.


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4 Exceptional items

Exceptional items comprise those items that are material and one-off in nature that the Group believes should be separately disclosed to

assist in the understanding of the underlying financial performance of the Group. These one-off projects can span a number of accounting

periods.

Operating costs

Year ended

31 March

2015

£m

Year ended

31 March

2014

£m

Spreads restructuring costs (16.7) (3.8)

Rationalisation of operating sites (11.8) (2.0)

Costs associated with the separation and proposed sale of the Dairies operations (4.3) –

Demineralised whey powder and GOS projects (3.4) –

Business reorganisation (0.3) (4.4)

Disposal of the business and assets of FoodTec UK Limited (0.4) –

Disposal of remaining interest in Wexford Creamery Limited 0.6 –

(36.3) (10.2)

Finance costs

Repayment of loan notes and associated costs (Note 5) – (0.2)

(36.3) (10.4)

Tax relief on exceptional items 6.6 2.1

Deferred tax adjustment for change in UK corporation tax rate – 1.9

(29.7) (6.4)

Discontinued operations (Note 29) – 1.4

(29.7) (5.0)

Spreads restructuring costs

During the year, the Group completed the consolidation of its spreads production operations into one site in Kirkby, Liverpool. As a result of

this consolidation, the site at Crudgington, Shropshire ceased production in December 2014. The exceptional costs incurred in the year were

£16.7 million (2014: £3.8 million), including duplicate running, commissioning and redundancy costs. The tax credit on this exceptional charge

for the year was £3.2 million (2014: £0.8 million).

Rationalisation of operating sites

In September 2014, the Group announced it was starting consultation with employees and their representatives regarding the closure of its

glass bottling dairy in Hanworth, West London and its specialist cream potting facility in Chard, Somerset. The Hanworth site is expected to

remain operational until 2016. An exceptional charge of £2.5 million has been incurred in the period, primarily comprising accelerated

depreciation of assets following an assessment of their useful economic lives as well as other associated closure costs. The Chard site is to be

closed on economic grounds in the second half of 2015. As a result a £7.8 million impairment charge has been recognised to write the assets

down to nil being their net realisable value after selling costs which is lower than their value in use and a charge of £1.5 million in relation to

redundancy and closure costs has also been recognised. The tax credit on these exceptional costs in the year was £2.1 million.

The exceptional charge for the year ended 31 March 2014 related to the January 2014 closure of the Proper Welsh Milk dairy (£0.6 million) and

the impairment of the plant and equipment and working capital of FoodTec UK Limited, a subsidiary whose business and assets were sold on

29 July 2014 (£1.4 million). The tax credit on this exceptional charge in the year ended 31 March 2014 was £0.3 million.

Costs associated with the separation and proposed sale of the Dairies operations

On 5 November 2014, the Group entered into an agreement to dispose of its Dairies operations to Müller which is subject to clearance from

the relevant competition authorities. Following this announcement, the Group has started the process of separating its Dairies operations into

a standalone operating unit to support the potential sale and increase focus in the challenging Dairies market. During the year, £2.7 million of

costs were incurred in relation to the potential sale of the Dairies operation, which primarily comprised transaction related professional fees

and £1.6 million in relation to the creation of a standalone Dairies operation including one-off business systems and other costs. The tax credit

on this exceptional charge in the year was £0.5 million.

Demineralised whey powder and GOS projects

The Group has initiated projects to significantly invest in its cheese creamery at Davidstow, Cornwall to enable the Group to commence

the manufacture of demineralised whey powder, a base ingredient of infant formula, and GOS, widely used in infant formula. The Group is

investing £65 million on new manufacturing assets at Davidstow over financial years ending 31 March 2015 and 31 March 2016. During the

year, £3.4 million of exceptional costs were incurred relating to project initiation and set up. The tax credit on this exceptional charge in the

year was £0.7 million.



5 Finance costs and other finance income

Finance costs

Year ended

31 March

2015

£m

Year ended

31 March

2014

£m

Bank loans and overdrafts (at amortised cost) (8.1) (9.7)

Unwind of discount on provisions (Note 23) – (0.2)

Finance charges on finance leases (0.1) (0.2)

Pre-exceptional finance costs – continuing operations (8.2) (10.1)

Finance income on cash balances (financial assets not at fair value through profit and loss) 0.1 0.2

Pre-exceptional net finance costs – continuing operations (8.1) (9.9)

Exceptional cost of repayment of loan notes (Note 4) – (0.2)

Total net finance costs – continuing operations (8.1) (10.1)

Interest payable on bank loans and overdrafts is stated after capitalising £2.4 million (2014: £1.6 million) of interest on expenditure on capital

projects at the Group’s average cost of borrowing.

Business reorganisation

In February 2013 the Group announced plans to reorganise the business into a single management and operational structure from

1 April 2013. This reorganisation has resulted in exceptional redundancy costs in the year of £0.3 million. In the year ended 31 March 2014 a

£4.4 million exceptional charge was taken comprising redundancy costs and the write-down of an intangible asset. The tax credit in the year

on this exceptional charge was £0.1 million. (2014: £0.8 million).

Disposal of business and assets of FoodTec UK Limited

On 29 July 2014, the Group completed the sale of the business and assets of FoodTec UK Limited for consideration of £1.2 million, realising a

loss on disposal of £0.4 million (see Note 29).

Disposal of remaining interest in Wexford Creamery Limited

On 16 May 2014 the Group completed the sale of its 30% shareholding in Wexford Creamery Limited for €3.4 million (£2.8 million) realising a

gain on disposal of £0.6 million (see Note 29).

Exceptional items in the year ended 31 March 2014 only:

Repayment of loan notes and associated costs

Exceptional costs of £0.2 million relating to bank charges and professional fees were incurred in the year ended 31 March 2014 as a result of

the early repayment of private placement loan notes in April 2013. The tax effect of this exceptional charge was nil.

Deferred tax adjustment for change in UK corporation tax rate

With effect from 1 April 2015, the corporation tax rate (which was enacted on 2 July 2013) was reduced to 20%. (see Note 6). The deferred tax

calculations based on the lower rate resulted in a deferred tax benefit of £1.9 million in the year ended 31 March 2014. Due to the size and

one-off nature of this significant amendment in the enacted rate, it was classified as an exceptional deferred tax credit in the year.

4 Exceptional items continued


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6 Tax expense

The major components of income tax expense for the years ended 31 March 2015 and 2014 are:

Consolidated income statement2015

£m

2014

£m

Current income tax

Adjustments in respect of previous years – current tax – 0.2

– transfer from deferred tax – –

– 0.2

Deferred income tax

Relating to origination and reversal of temporary differences 2.1 8.0

Effect of change in tax rate – (1.9)

Adjustments in respect of previous years – deferred tax (0.5) (0.9)

– transfer to current tax – –

1.6 5.4

Analysed: Before exceptional items 8.2 9.4

Exceptional items (6.6) (4.0)

1.6 5.4

Reconciliation between tax charge/(credit) and the profit/(loss) before tax multiplied by the statutory rate of corporation tax in the UK:

2015

£m

2014

£m

Profit/(loss) before tax 22.1 54.2

Tax at UK statutory corporation tax rate of 21% (2014: 23%) 4.6 12.5

Adjustments in respect of previous years (0.5) (0.7)

Adjustment in respect of associate’s profits – (0.1)

Adjustment for change in UK corporation tax rate* (0.2) (1.9)

Non-deductible expenses 1.9 1.2

Profits offset by available tax relief (4.2) (5.6)

1.6 5.4

The effective pre-exceptional rate of tax on Group profit before tax is 14.0% (2014: 14.6%). The effective tax rate continues to be below the

headline rate of UK corporation tax due to the property profit income stream, on which the tax charges are sheltered by brought forward

capital losses or roll-over relief. The higher proportion of property profits this year has reduced the effective rate of tax but we expect the

effective tax rate to increase next year.

* UK corporation tax rate reduced to 21% from April 2014. A further 1% reduction has been enacted, taking the rate to 20% from April 2015. Owing to the availability of

brought forward trading tax losses, the Group did not expect any taxable profits to arise before 1 April 2015, accordingly deferred tax was provided on all temporary

differences in the prior year, as well as the current year, at 20%.

Consolidated other comprehensive income2015

£m

2014

£m

Deferred income tax related to items charged to other comprehensive income

Pension deferred tax movement taken directly to reserves (1.7) (8.7)

Valuation of financial instruments (0.2) 0.3

Tax credit (1.9) (8.4)

There were no income tax or deferred tax amounts charged to changes in equity in the year ended 31 March 2015 (2014: nil).



Deferred income tax

Deferred income tax at 31 March 2015 and 2014 relates to the following:

Deferred tax liability2015

£m

2014

£m

Accelerated depreciation for tax purposes (29.5) (28.0)

Financial instruments valuation – (0.1)

Goodwill and intangible assets (8.5) (8.0)

(38.0) (36.1)

Deferred tax asset

Government grants 1.6 1.9

Share-based payments 0.1 0.1

Pensions 16.0 17.9

Financial instruments valuation 0.1 –

Other 9.1 4.8

26.9 24.7

Net deferred tax liability (11.1) (11.4)

The Company has a deferred tax asset of £0.2 million at 31 March 2015 (2014: £0.2 million asset). This relates to temporary differences in

respect of financial instruments valuations.

The movement on the net deferred tax balance is shown below:

2015

£m

2014

£m

Opening net deferred tax liability (11.4) (14.6)

Charge to income statement (1.6) (5.2)

Credit to other comprehensive income 1.9 8.4

Closing net deferred tax liability (11.1) (11.4)

The movement on the deferred tax liability is shown below:

Deferred tax asset/(liability)

Goodwill and

intangible

assets

£m

Pensions

£m

Accelerated

tax

depreciation

£m

Other

temporary

differences

£m

Total

£m

Balances at 31 March 2014 (8.0) 17.9 (28.0) 6.7 (11.4)

(Charge)/credit to income statement: continuing operations (0.5) (3.6) (1.5) 4.0 (1.6)

Credit to other comprehensive income – 1.7 – 0.2 1.9



(Charge)/credit to income statement: continuing operations 1.2 (7.9) 3.7 (2.2) (5.2)

Credit/(charge) to other comprehensive income – 8.7 – (0.3) 8.4


The Group has capital losses which arose in the UK of £34.0 million (2014: £137.5 million) that are available indefinitely for offset against future

taxable gains. Deferred tax has not been recognised in respect of these losses as there is no foreseeable prospect of their being utilised.

The Group has realised capital gains amounting to £39.2 million (2014: £27.6 million) for which rollover relief claims have been or are intended

to be made.

6 Tax expense continued


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8 Earnings per share

Basic earnings/losses per share (‘EPS’) on profit/(loss) for the year from continuing operations is calculated by dividing profit/(loss) from

continuing operations by the weighted average number of ordinary shares outstanding during the year.

Diluted EPS is calculated by dividing the profit from continuing operations by the weighted average number of ordinary shares outstanding

during the year plus the difference between the number of ordinary shares issued and the number of ordinary shares that would have been

issued at the average market price of ordinary shares during the year. Note that in the circumstances where there is a basic loss per share,

share options are anti-dilutive and therefore are not included in the calculation of diluted losses per share.

The shares held by the Dairy Crest Employees’ Share Ownership Plan Trust (‘ESOP’) are excluded from the weighted average number of

shares in issue used in the calculation of basic and diluted earnings per share.

To show earnings per share on a consistent basis, which in the Directors’ opinion reflects the ongoing performance of the business more

appropriately, adjusted earnings per share has been calculated. The computation for basic and diluted earnings per share (including adjusted

earnings per share) is as follows:


Earnings

£m

Weighted

average no

of shares

million

Per share

amount

pence

Earnings

£m

Weighted

average no

of shares

million

Per share

amount

pence

Basic EPS from continuing operations 20.5 136.7 15.0 48.8 136.5 35.8

Effect of dilutive securities:

Share options – 0.9 (0.1) – 1.6 (0.5)

Diluted EPS from continuing operations 20.5 137.6 14.9 48.8 138.1 35.3

Adjusted EPS from continuing operations

Profit from continuing operations 20.5 136.7 15.0 48.8 136.5 35.8

Exceptional items (net of tax) 29.7 – 21.7 6.4 – 4.7

Amortisation of acquired intangible assets (net of tax) 0.3 – 0.2 0.3 – 0.2

Pension interest expense (net of tax) 1.4 – 1.1 0.2 – 0.1

Adjusted basic EPS from continuing operations 51.9 136.7 38.0 55.7 136.5 40.8


Share options – 0.9 (0.3) – 1.6 (0.5)

Adjusted diluted EPS from continuing operations 51.9 137.6 37.7 55.7 138.1 40.3

Basic EPS from discontinued operations – 136.7 – 1.4 136.5 1.0


Share options – 0.9 – 1.6 –

Diluted EPS from discontinued operations – 137.6 – 1.4 138.1 1.0

Basic EPS on profit for the year 20.5 136.7 15.0 50.2 136.5 36.8


Share options – 0.9 (0.1) – 1.6 (0.4)

Diluted EPS on profit for the year 20.5 137.6 14.9 50.2 138.1 36.4

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of signing of

these financial statements.

7 Dividends paid and proposed

Declared and paid during the year2015

£m

2014

£m

Equity dividends on ordinary shares:

Final dividend for 2014: 15.4 pence (2013: 15.0 pence) 21.0 20.5

Interim dividend for 2015: 6.0 pence (2014: 5.9 pence) 8.2 8.0

29.2 28.5

Proposed for approval at AGM (not recognised as a liability at 31 March)

Equity dividends on ordinary shares:

Final dividend for 2015: 15.7 pence (2014: 15.4 pence) 21.6 21.0



9 Remuneration of employees and key management personnel

Number of employees (continuing operations) – Group

Year ended

31 March

2015

number

Year ended

31 March

2014

number

Average number of employees:

Production 1,819 1,859

Sales, distribution and administration 2,391 2,686

Total employees 4,210 4,545

Remuneration of employees, including key management personnel (continuing operations)

Year ended

31 March

2015

£m

Year ended

31 March

2014

£m

Wages and salaries 144.0 157.0

Social security costs 14.2 15.2

Equity settled share-based payments expense (Note 26) 1.7 1.5

Pension costs (Note 20) 6.6 7.0

166.5 180.7

The above costs relate to continuing operations and include amounts paid to the Company’s Executive and Non-executive Directors.

Further analysis is as follows:

Directors

Year ended

31 March

2015

£000

Year ended

31 March

2014

£000

Salaries and benefits 1,424 1,374

Bonuses 198 833

Fees and benefits to Non-Executive Directors 388 327

Emoluments 2,010 2,534

Severance payments 219 557

Employer payments to defined contribution pension scheme 20 39

In addition, the Executive Directors exercised options during the year. Aggregate gains made by the Directors on the exercise of these share

options were £189,374 (2014: £nil). The amount of the gain relating to highest paid director was £106,048 (2014: £nil).

Highest paid director

Salary and benefits 666 656

Bonus 97 423

Emoluments 763 1,079

Employer payments to defined contribution pension scheme – 9

Further information relating to Directors’ remuneration for the year ended 31 March 2014 is provided in the Directors’ Remuneration Report on

pages 45 to 62.


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10 Property, plant and equipment

Consolidated 2015

Land and

buildings

£m

Vehicles,

plant and

equipment

£m

Assets in

the course of

construction

£m

Total

£m

Cost

At 1 April 2014 174.0 287.3 69.5 530.8

Additions 2.6 3.9 74.9 81.4

Disposals (6.5) (45.9) – (52.4)

Disposal of FoodTec UK Limited (Note 4) (0.3) (2.9) – (3.2)

Transfers and reclassifications 1.9 67.6 (69.5) –

At 31 March 2015 171.7 310.0 74.9 556.6

Accumulated depreciation

At 1 April 2014 63.7 178.5 – 242.2

Charge for the year 5.0 22.4 – 27.4

Asset impairments 3.5 5.7 – 9.2

Disposals (3.3) (44.2) – (47.5)

Disposal of FoodTec UK Limited (Note 4) (0.3) (2.9) – (3.2)

At 31 March 2015 68.6 159.5 – 228.1

Net book amount at 31 March 2015 103.1 150.5 74.9 328.5

Consolidated 2014

Cost

At 1 April 2013 183.4 306.5 23.6 513.5

Additions 1.6 6.3 54.9 62.8

Disposals (12.3) (28.0) (5.2) (45.5)

Transfers and reclassifications 1.3 2.5 (3.8) –

At 31 March 2014 174.0 287.3 69.5 530.8

Accumulated depreciation

At 1 April 2013 64.4 178.8 – 243.2

Charge for the year 5.6 23.0 – 28.6

Asset impairments 0.1 1.7 – 1.8

Disposals (6.4) (25.0) – (31.4)

At 31 March 2014 63.7 178.5 – 242.2


2014/15

The carrying value of property, plant and equipment within each cash-generating unit (‘CGU’) is reviewed for impairment when events or

changes in circumstances indicate that the carrying value may not be recoverable. With regard to the Dairies CGU, goodwill was fully impaired

in 2011/12, however, given the low margins in this business and the challenging market conditions in 2014/15, the carrying value of property,

plant and equipment within this CGU has been reviewed along with its value in use. The impairment methodology and key inputs for all CGUs

are as set out in Note 11. For the Dairies CGU, consideration was taken of the future cash flows on an on-going basis and also the impact of

the potential disposal of the Dairies operations to create a risk weighted value in use calculation of the CGU. The discount rate applied to the

value in use calculation was 7.8% (2014: 9.3%). The key input assumptions in performing the impairment test were the profits expected from

property sales, the allocation of corporate costs, the projected profit margin growth and the timing and cash consideration of any potential

Dairies operations disposal. The impairment review has not indicated any required write down of carrying value of property, plant and

equipment in the year ended 31 March 2015. The value in use calculations resulted in a low level of headroom compared to the carrying value

and any movement in the input assumptions above could lead to an impairment.

During the year £9.2 million of assets were impaired. The Chard site is to be closed on economic grounds in the second half of 2015, a £7.8

million impairment charge has been recognised to write the assets down to nil being their net realisable value after selling costs which is lower

than their value in use. In addition, £1.4 million of exceptional accelerated depreciation has been charged in relation to Hanworth (see Note 4).

2013/14

In 2013/14, the Group impaired £1.8 million of property, plant and equipment relating to the strategic review of FoodTec UK Limited

(£0.3 million), the closure of Proper Welsh Milk dairy (£0.5 million) and the consolidation to a single UK spreads production site (£1.0 million).

For further information see Note 4.



Capitalised leases included in vehicles, plant and equipment comprise:2015

£m

2014

£m

Cost 29.0 31.7

Accumulated depreciation (22.7) (24.0)

Net book amount 6.3 7.7

11 Goodwill

£m

Cost

At 31 March 2013 and 31 March 2014 147.3

Disposal of FoodTec UK Limited (Note 4) (1.7)

At 31 March 2015 145.6

Accumulated impairment

At 31 March 2013 and 31 March 2014 (73.0)

Disposal of FoodTec UK Limited (Note 4) 1.7

At 31 March 2015 (71.3)

Net book amount at 31 March 2015 74.3

Net book amount at 31 March 2014 74.3

Impairment testing of goodwill

Acquired goodwill has been allocated for impairment testing purposes to four groups of cash-generating units (‘CGUs’): Dairies, Spreads, MH

Foods and Cheese. At March 2012 goodwill in relation to the Dairies CGU was fully impaired and the carrying value of goodwill for this CGU at

31 March 2015 is nil.

All groups of CGUs with goodwill are tested for impairment annually by comparing the carrying amount of that CGU with its recoverable

amount. Recoverable amount is determined based on a value-in-use calculation using cash flow projections based on financial budgets and

strategic plans approved by senior management covering a three-year period and appropriate growth rates beyond that. The discount rate

applied to the projections is 8.8% for Spreads (2014: 9.8%) and 8.9% for MH Foods and Cheese (2014: 9.4%).

Discount rates are pre-tax and calculated by reference to average industry gearing levels, the cost of debt and the cost of equity based on the

capital asset pricing model and CGU-specific risk factors.

The growth rate used to extrapolate cash flows beyond the three-year period for MH Foods, Cheese and Spreads is nil (2014: 2% Cheese and

MH Foods, nil Spreads).

The carrying amount of goodwill allocated to groups of CGUs at 31 March 2015 is:

MH Foods £6.7 million (2014: £6.7 million)

Spreads £65.5 million (2014: £65.5 million)

Cheese £2.1 million (2014: £2.1 million)

Gross margin – budgeted gross margins are based initially on actual margins achieved in the preceding year further adjusted for projected

input and output price changes, volume changes, initiatives implemented and associated efficiency improvements. The budgeted margins

form the basis for strategic plans, which incorporate longer-term market trends.

Discount rates – reflect management’s estimate of the risk-adjusted weighted average cost of capital for each CGU.

Raw materials prices – budgets are prepared using the most up to date price and forecast price data available. This is based on forward

prices in the market place adjusted for any contracted prices at the time of forecast. The key resources are milk, vegetable oils, fuel oil, diesel,

gas and electricity and packaging costs.

Growth rate estimates – for periods beyond the length of the strategic plans, growth estimates are based upon published industry research

adjusted downwards to reflect the risk of extrapolating growth beyond a three year time frame.

The Directors consider the assumptions used to be consistent with the historical performance of each CGU where appropriate and to be

realistically achievable in the light of economic and industry measures and forecasts.

2014/15 and 2013/14

Sensitivity to changes in assumptions

With regard to the assessment of value in use of the Spreads, MH Foods and Cheese CGUs, management believes that no reasonably

possible change in the above key assumptions would cause the carrying value of those units to exceed their recoverable amount.

10 Property, plant and equipment continued


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12 Intangible assets

Assets in

the course of

construction

£m

Internally

generated

£m

Acquired

intangibles

£m

Total

£m

Cost

At 31 March 2013 8.3 26.3 8.7 43.3

Additions 1.1 – – 1.1

Transfers and reclassifications (2.9) 2.9 – –

At 31 March 2014 6.5 29.2 8.7 44.4

Additions 1.3 – – 1.3

Disposal – – – –

Transfers and reclassifications (6.4) 6.4 – –

At 31 March 2015 1.4 35.6 8.7 45.7

Accumulated amortisation

At 31 March 2013 – 9.7 3.1 12.8

Amortisation for the year – 3.3 0.4 3.7

At 31 March 2014 – 13.0 3.5 16.5

Disposal – – – –

Amortisation for the year – 3.2 0.4 3.6

At 31 March 2015 – 16.2 3.9 20.1



Assets in the course of construction comprise enterprise resource planning costs and integrated business systems costs in respect of

projects that are not completed as at 31 March 2015.

Internally generated intangible assets comprise software development and implementation costs across manufacturing sites, the milk&more

business and Head Office.

Acquired intangibles comprise predominantly brands acquired with the acquisition of businesses. The largest component within acquired

intangibles is the ‘Frylight’ brand acquired with the acquisition of Morehands Limited (MH Foods) in June 2011. A useful life of 15 years has

been assumed for this brand, with 11 years remaining. The carrying value of the Frylight brand at 31 March 2015 is £4.5 million (2014: £4.9

million).



13 Investments

Consolidated

During the year ended 31 March 2015, the Group acquired a further 3.5% of the share capital of HIECO Limited for a consideration of

£0.1 million. At 31 March 2015, the Group held 10.5% of the share capital of HIECO Limited. In addition, the Group acquired 50% of the share

capital of Promovita Ingredients Limited for a consideration of £0.1 million.

Company

Share grants

awarded in

subsidiaries

£m

Shares in

subsidiary

undertakings

£m

Total

£m

Cost

At 1 April 2013 12.8 468.1 480.9

Share based payment charge in subsidiary companies 1.2 – 1.2

At 31 March 2014 14.0 468.1 482.1

Share based payment charge in subsidiary companies 0.7 – 0.7

At 31 March 2015 14.7 468.1 482.8

Shares in subsidiary undertakings comprise an investment in Dairy Crest Limited of £239.2 million and an investment of £228.9 million in Dairy

Crest UK Limited.

Share grants awarded in subsidiaries represent the cumulative cost of the Company’s grant of equity instruments, under share based

payment awards, to employees of subsidiary undertakings.

At 31 March 2015 the principal subsidiary undertakings were:

Business

Percentage of

ordinary share

capital held

Subsidiary undertakings and associates:

Dairy Crest Limited Manufacture of dairy products 100%

Philpot Dairy Products Limited Trading in dairy products 100%

Morehands Limited Manufacture of cooking oils 100%

The principal place of operation and country of incorporation of all subsidiary undertakings is England and Wales.

14 Investment in associates

During the year, the Group sold the remaining investment in Wexford Creamery Limited (see Note 4 and Note 29).

The share of the assets, liabilities, income and expenses of the associate at 31 March 2014 and for the year then ended, which was equity

accounted for in the consolidated financial statements, were as follows:

2015

£m

2014

£m

Current assets – 2.2

Current liabilities – (1.4)

Share of net assets – 0.8

Revenue – 13.5

Operating costs – (13.2)

Result before tax – 0.3

Tax expense – –

Share of net result – 0.3


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15 Inventories

Consolidated

2015

£m

2014

£m

Raw materials and consumables 30.6 33.4

Finished goods 169.1 186.2

199.7 219.6

Cheese inventories at 31 March 2015 totalled £149.2 million (2014: £167.2 million).

During the year ended 31 March 2015, £0.4 million of engineering and packaging inventories were written off following the ongoing

consolidation of Clover manufacture into one site.

In April 2013 the Group granted the Trustee of the Dairy Crest Group Pension Fund a floating charge over maturing cheese inventories with a

maximum realisable value of £60 million.

16 Trade and other receivables


2015

£m

2014

£m

2015

£m

2014

£m

Trade receivables 74.8 104.8 – –

Amounts owed by subsidiary undertakings – – – 9.9

Other receivables 13.5 8.4 0.4 0.6

Prepayments and accrued income 7.0 5.2 – –

95.3 118.4 0.4 10.5

All amounts above, with the exception of prepayments and accrued income, are financial assets.

Trade receivables are denominated in the following currencies:

Consolidated

2015

£m

2014

£m

Sterling 71.5 96.5

Euro 1.3 2.0

US Dollar 1.9 6.2

Swiss Franc 0.1 0.1

74.8 104.8

There are no material concentrations of credit risk.

Trade receivables are non interest bearing and are generally on 30-90 days’ terms and are shown net of a provision for impairment. As at

31 March 2015, trade receivables at nominal value of £7.7 million (2014: £7.7 million) were impaired and provided for. Movements in the

provision for impairment of receivables were as follows:

Consolidated

2015

£m

2014

£m

At 1 April 7.7 7.0

Net charge for the year – operating – 0.8

Amounts written off – (0.1)

At 31 March 7.7 7.7

Bad debt provisions are principally in the Dairies’ residential and mid sized commercial channels on debt over 90 days. These businesses sell

product on the doorstep and to middle ground and foodservice customers. The Group has no history of bad debt with regard to sales to large

multiple retailers. There were no impairment provisions on any other class of receivables at 31 March 2015 or 2014.



At 31 March, the analysis of trade receivables that were past due but not impaired is as follows:

Past due, not impaired

Neither past

due nor

Total

£m

impaired

£m

30 – 60 days

£m

60 – 90 days

£m

> 90 days

£m

31 March 2015 74.8 60.8 11.8 1.3 0.9

31 March 2014 104.8 89.5 12.3 2.6 0.4

The credit quality of trade receivables is assessed by reference to external credit ratings where available, otherwise historical information

relating to counterparty default rates is used.

16 Trade and other receivables continued

17 Financial assets

(i) Derivative financial instruments

Consolidated Note

2015

£m

2014

£m

Current

Cross currency swaps (cash flow hedges) – –

Forward currency contracts (cash flow hedges) 31 – 0.4

– 0.4

Non-current

Option to sell 20% holding in Wexford Creamery Limited 31 – 1.6

Cross currency swaps (cash flow hedges) 31 14.7 5.4

14.7 7.0

Company2015

£m

2014

£m

Current

Cross currency swaps (cash flow hedges) 31 – –

Non-current

Cross currency swaps (cash flow hedges) 31 14.7 5.4

All derivative financial instruments are fair valued at each balance sheet date and all, with the exception in the prior year of the option to sell a

20% holding in Wexford Creamery Limited (‘WCL’), comprise Level 2 valuations under IFRS 7: Financial Instruments – Disclosures, namely,

that they are based on inputs observable directly (from prices) or indirectly (derived from prices).

WCL was sold during the year and there was no material movement in the fair value of the WCL options between recognition in June 2010 and

the date of disposal on 16 May 2014 (see Note 4).

18 Cash and short-term deposits


2015

£m

2014

£m

2015

£m

2014

£m

Cash and short-term deposits 50.6 67.3 0.2 –

Cash at bank earns interest at floating rates based on daily bank deposit rates.

Counterparty risk and the Group’s policy for managing deposits are described in Note 30.


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19 Financial liabilities

Consolidated Note

2015

£m

2014

£m

Current

Obligations under finance leases 31 – 1.8

Loan notes (at amortised cost) 31 – 25.3

Debt issuance costs – (0.6)

Financial liabilities – Borrowings – 26.5

Cross currency swaps (cash flow hedges) – 2.0

Forward currency contracts (at fair value: cash flow hedge) 31 0.2 –

Financial liabilities – Derivative financial instruments 0.2 2.0

Current financial liabilities 0.2 28.5

Non-current

Obligations under finance leases 31 – –

Loan notes (at amortised cost) 31 158.2 144.2

Bank loans (at amortised cost) 31 105.0 36.0

Debt issuance costs (0.2) (0.5)

Financial liabilities – Borrowings 263.0 179.7

Cross currency swaps (cash flow hedges) 1.9 6.2


Non-current financial liabilities 264.9 185.9

On 4 April 2014 there was a natural maturity of loan notes of €30.6 million (£27.4 million).

All derivative financial instruments are fair valued at each balance sheet date and all comprise Level 2 valuations under IFRS 7: Financial

Instruments – Disclosures, namely, that they are based on inputs observable directly (from prices) or indirectly (derived from prices).

Interest bearing loans and borrowings

The effective interest rates on loans and borrowings at the balance sheet date were as follows:

Maturity

2015

£m

Effective

Interest rate

at March 2015

2014

£m

Effective

Interest rate

at March 2014

Current

Loan notes: Euro swapped into £ April 2014 – – 25.3 4.97%

Finance leases – – 1.8 5.18%

Debt issuance costs – (0.6)

– 26.5

Non-current

Multi-currency revolving credit

facilities:

Sterling floating October 2016 105.0 LIBOR + 115bps 36.0 LIBOR + 115bps

Loan notes: US$ swapped into £ April 2016 82.9 5.31% 73.8 5.31%

Sterling April 2016 10.0 5.27% 10.0 5.27%

Euro swapped into £ April 2017 7.7 5.53% 8.8 5.53%

Sterling April 2017 2.8 5.84% 2.8 5.84%

US$ swapped into £ November 2018 16.8 3.87% 15.0 3.87%


Debt issuance costs (0.2) (0.5)

263.0 179.7

The Group is subject to a number of covenants in relation to its borrowing facilities which, if contravened, would result in its loans becoming

immediately repayable. These covenants specify a maximum net debt to EBITDA ratio of 3.5 times and minimum interest cover ratio of 3.0

times. No covenants were contravened in the year ended 31 March 2015 (2014: None). Key covenants under the 2011 revolving credit facility

and debt private placement were unchanged from existing covenants.

Details of the Group’s interest rate management strategy and interest rate swaps are included in notes 30 and 31.



19 Financial liabilities continued

Company2015

£m

2014

£m

Current

Loan notes (at amortised cost) – 25.3

Financial liabilities – Borrowings – 25.3

Cross currency swaps (cash flow hedges) – 2.0

Financial liabilities – Derivative financial instruments – 2.0

Current financial liabilities – 27.3

Non-current

Loan notes (at amortised cost) 158.2 144.2

Bank loans (at amortised cost) – –

Financial liabilities – Borrowings 158.2 144.2

Cross currency swaps (cash flow hedges) 1.9 6.2


Non-current financial liabilities 160.1 150.4

All derivative financial instruments are fair valued at each balance sheet date and all comprise Level 2 valuations under IFRS 7: Financial

Instruments – Disclosures, namely, that they are based on inputs observable directly (from prices) or indirectly (derived from prices).

Interest bearing loans and borrowings

The effective interest rates on loans and borrowings at the balance sheet date were as follows:

Maturity

2015

£m

Effective

Interest rate

at March

2015

2014

£m

Effective

Interest rate

at March

2014

Current

Loan notes: Euro swapped into £ April 2014 – – 25.3 4.97%

– 25.3

Non-current

Loan notes: US$ swapped into £ April 2016 82.9 5.31% 73.8 5.31%

Sterling April 2016 10.0 5.27% 10.0 5.27%

Euro swapped into £ April 2017 7.7 5.53% 8.8 5.53%

Sterling April 2017 2.8 5.84% 2.8 5.84%



158.2 144.2


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20 Retirement benefit obligations

The Group has a defined benefit pension scheme (Dairy Crest Group Pension Fund), which is closed to future service accrual and a defined

contribution scheme (Dairy Crest Group defined contribution scheme).

Defined Benefit Pension Scheme

The Dairy Crest Group Pension Fund (‘the Fund’) is a final salary defined benefit pension scheme, which was closed to future service accrual

from 1 April 2010 and had been closed to new joiners from 30 June 2006. This pension scheme is a final salary scheme.

The Fund is administered by a corporate trustee which is legally separate from the Company. The Trustee’s directors are comprised of

representatives of both the employer and employees, plus a professional trustee. The Trustee is required by law to act in the interest of all

relevant beneficiaries and is responsible for the investment policy with regard to the assets plus the day to day administration of the benefits.

The Company and Trustee have agreed a long term strategy for reducing investment risk as and where appropriate. This includes an asset-

liability matching policy which aims to reduce the volatility of the funding level of the pension plan by investing in assets which perfrom in line

with the liabilities of the plan so as to protect against inflation being higher than expected. In December 2008 and June 2009, certain

obligations relating to retired members were hedged by the purchase of annuity contracts.

During the financial year the Fund has introduced a Pension Increase Exchange (‘PIE’) at retirement, an offer which enables members to

exchange pension increases on their pensions accrued before April 1997, excluding Guaranteed Minimum Pensions (‘GMP’) for a higher

non-increasing pension.

UK legislation requires that pension schemes are funded prudently. The most recent full actuarial valuation of the Fund was carried out as at

31 March 2013 by the Fund’s independent actuary using the projected unit credit method. Full actuarial valuations are carried out triennially.

This valuation resulted in a deficit of £145.0 million compared to the IAS19 deficit of £56.3 million reported at that date. The next full actuarial

valuation will be carried out in 2016/17 on the 31 March 2016 position.

From October 2009, the Group has been making additional funding contributions to the scheme of £20.0 million per annum. Under the latest

schedule of contributions, which was signed in March 2014, the level of contributions will reduce to £13.0 million per annum for 2014/15 and

2015/16, increasing to £16.0 million per annum in 2016/17 and £20.0 million per annum for 2017/18 through to 2019/20. These annual

contributions include £2.8 million per annum of rental payments for land and buildings that are subject to a sale and leaseback agreement

between the Group and the Fund as part of the schedule of contributions.

The Fund duration is an indicator of the weighted-average time until benefit payments are made. For the Fund as a whole, the duration is

around 18 years reflecting the approximate split of the defined benefit obligation (including insured pensioners) between deferred members

(duration of 24 years), current non-insured pensioners (duration of 15 years) and insured pensioners (duration of 11 years).

The principal risks associated with the Group’s defined benefit pension arrangements are as follows:

Asset Volatility

The liabilities are calculated using the discount rate set with reference to corporate bond yields; if assets underperfom this yield, this will create

a deficit. The Fund holds a significant proportion in a range of return-seeking assets which, though expected to outperform corporate bonds

in the long term, create volatility and risk in the short-term. The allocation to return-seeking assets is monitored to ensure it remains

appropriate given the Fund’s long terms objectives.

Changes in Bond Yields

A decrease in corporate bond yields will increase the value placed on the Fund’s liabilities for accounting purposes, although this will be

partially offset by an increase in the value of the fund’s bond holdings.

Inflation Risk

A significant portion of the Fund’s benefit obligations are linked to inflation, and higher expected future inflation will lead to higher liabilities

(although, in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets

are either unaffected by or only loosely correlated with inflation, meaning that an increase in expected future inflation will also increase the

deficit.

Longevity Risk

The majority of the Fund’s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase

in liabilities.

A contingent liability exists in relation to the equalisation of GMP. The UK Government intends to implement legislation which could result in

higher benefits for some members. This would increase the defined benefit obligation of the Fund. At this stage, it is not possible to quantify

the impact of this change.



The following tables summarise the components recognised in the consolidated balance sheet, consolidated income statement and

consolidated statement of comprehensive income.

Defined benefit obligation2015

£m

2014

£m

Fair value of scheme assets: – Equities 53.1 45.5

– Bonds and cash 592.6 523.6

– Equity return swaps valuation* 10.7 3.3

– Property and other 106.0 92.3

– Insured retirement obligations 306.8 299.4

1,069.2 964.1

Defined benefit obligation: – Uninsured retirement obligations** (790.4) (714.3)

– Insured retirement obligations (303.3) (297.4)

Total defined benefit obligation (1,093.7) (1,011.7)

Recognition of liability for unrecoverable notional surplus (16.9) (10.1)

(1,110.6) (1,021.8)

Net liability recognised in the balance sheet (41.4) (57.7)

Related deferred tax asset 16.0 17.9

Net pension liability (25.4) (39.8)

* Comprises a positive synthetic equity exposure of £155.3 million (2014: £155.7 million) and a negative LIBOR exposure of £144.6 million (2014: £152.4 million).

** Includes obligations to deferred members of £551.6 million (2014: £498.6 million) and non-insured members of £238.8 million (2014: £215.7 million).

The Group is entitled to any surplus on winding up of the Fund albeit refunds are subject to tax deductions of 35% at source. Based on the

present value of committed cash contributions at 31 March 2015 and the IAS 19 valuation at that date of £24.5 million, £16.9 million would be

deducted from any notional surplus returned to the Group and this has been recognised as an additional liability in accordance with IFRIC 14.

However, it should be noted that cash contributions are determined by reference to the triennial actuarial valuation, not the IAS 19 valuation.

The actuarial deficit is greater than that recognised under IAS 19 since liabilities are discounted by reference to gilt yields rather than high

quality corporate bond yields.

Amounts recognised in consolidated income statement2015

£m

2014

£m

Administration expenses (0.8) (1.0)

Past service cost 1.8 –

Other finance costs – pensions (1.8) (0.3)

Loss before tax (0.8) (1.3)

Deferred tax 0.2 0.3

Loss for the period (0.6) (1.0)

Amounts recognised in other comprehensive income2015

£m

2014

£m

Return on plan assets (excluding amounts included in net interest) 89.3 26.8

Experience gains arising on scheme liabilities 10.1 4.3

Actuarial losses due to changes in the demographic assumptions – (18.0)

Actuarial losses due to changes in the financial assumptions (88.3) (63.5)

Net actuarial gain/(loss) 11.1 (50.4)

Movement in liability for unrecoverable notional surplus (6.8) 0.8

Recognised in other comprehensive income 4.3 (49.6)

Related tax 1.7 8.7

Net actuarial gain/(loss) recognised in other comprehensive income 6.0 (40.9)

Actual returns on plan assets were £130.2 million (2014: £68.3 million).

20 Retirement benefit obligations continued


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Movement in the present value of the defined benefit obligations are as follows:2015

£m

2014

£m

Opening defined benefit obligation (1,011.7) (925.7)

Interest cost (42.7) (41.8)

Actuarial losses (78.2) (77.2)

Past service cost 1.8 –

Benefits paid 37.1 33.0

Closing defined benefit obligation (1,093.7) (1,011.7)

Movement in the fair value of plan assets are as follows:

Opening fair value of scheme assets 964.1 869.4

Interest income on fund assets 40.9 41.5

Remeasurement gains on fund assets 89.3 26.8

Contributions by employer 12.8 60.4

Administration costs incurred (0.8) (1.0)

Benefits paid out (37.1) (33.0)

Closing fair value of plan assets 1,069.2 964.1

The Fund’s assets are invested in the following asset classes (all assets have a quoted market value in an active market with the exception of

property, annuity policy and cash).

Assets2015

£m

2014

£m

2013

£m

Equities:

United Kingdom 49.9 50.6 137.3

North America 65.9 62.8 89.3

Europe (ex UK) 26.4 29.1 35.8

Japan 17.1 15.8 34.4

Asia (ex Japan) 9.2 8.2 16.0

Emerging Markets 23.7 21.0 37.8

Global Small Cap 16.2 13.7 12.2

Cash/LIBOR Synthetic Equity (144.6) (152.4) (235.5)

Emerging Market Debti 54.0 61.2 38.4

High Yield Bonds – – 22.7

Multi Asset Creditii 62.5 60.0 –

Insurance Linked Securitiesiii 29.4 24.7 –

Absolute Return Bondsiv 33.1 30.4 –

Bonds:

Government Index Linked Gilts – – 111.4

Network Rail Index Linked Gilts – – 60.5

Corporate Bonds 118.1 98.0 131.8

Liability Driven Investmentsv 224.6 170.0 –

Annuity Policy 306.8 299.4 286.3

Property 76.6 67.6 62.5

Cash 100.3 104.0 28.5

Total 1,069.2 964.1 869.4




Equities are a combination of physical equities of £53.1 million (2014: £45.5 million), a positive synthetic equity exposure of £155.3 million (2014:

£155.7 million) and a negative LIBOR exposure of £144.6 million (2014: £152.4 million).

The Group does not use any of the pension fund assets.

i This is debt issued by emerging market countries denominated in the emerging market’s domestic currency. The debt is almost entirely issued by governments and

not by corporations. Investors benefit from higher yields on the bonds due to the additional risks of investing in emerging market countries, compared to developed

countries and it is also expected that emerging market currencies will appreciate over time relative to developed countries.

ii Multi Asset Credit strategies invest globally in a wide range of credit-based asset classes which include bank loans, high yield bonds, securitised debt, emerging

market debt and distressed debt of non-investment grade. The investment strategies will also allocate amounts in investment grade credit, sovereign bonds and

cash for defensive reasons. The strategies are opportunistic and allocate dynamically to the best opportunities within the credit market from an asset allocation and

individual security selection perspective.

iii Insurance linked securities are event-linked investments which allow investors outside the insurance industry to access insurance premiums for assuming various

forms and degrees of insurance risk. The underlying risk premium is a type of investment risk where the event is linked to natural or man-made catastrophes. The

premium paid to the investor represents compensation for the ‘expected loss’ due to the uncertainty around the size and timing of the insured event.

iv Absolute Return Bond strategies are designed to deliver a positive return in all market environments and will take advantage of numerous alpha opportunities within

the fixed income universe. The objective of the strategy is to capture returns from active management in a number of areas within fixed income including interest

rates, currencies, asset allocation and security selection. The strategy will have long and short positions and employ a degree of leverage. The strategies tend to

have low sensitivity to the direction of interest rates and credit.

v Insight have been appointed to manage the Liability Driven Investment (‘LDI’) portfolio for the Fund. The objective is to hedge a proportion of the Fund’s liabilities

against changes in interest rates and inflation expectations by investing in assets that are similarly sensitive to changes in interest rates and inflation expectations.

Insight will seek to add interest and inflation exposure to the LDI portfolio over time in line with parameters that have been set by the Trustee. Insight are permitted

to use a range of swaps and gilt based derivative instruments as well as physical bonds to structure the liability hedge for the Fund. In addition, Insight are

responsible for monitoring market yields against a number of pre-set yield triggers and will increase the level of hedging as and when the triggers are met.

The principal assumptions used in determining retirement benefit obligations for the Fund are shown below:

2015

%

2014

%

2013

%

Key assumptions:

Price inflation (RPI) 3.1 3.6 3.5

Price inflation (CPI) 2.0 2.6 2.5

Pension increases (Pre 1993 – RPI to 7%/annum) 3.1 3.6 3.5

Pension increases (1993 to 2006 – RPI to 5%/annum) 3.0 3.4 3.3

Pension increases (Post 2006 – RPI to 4%/annum) 2.8 3.1 3.0

Life expectancy at 65 for a male currently aged 50 (years) 23.9 23.8 22.6

Average expected remaining life of a 65 year old retired male (years) 22.4 22.3 21.7

Life expectancy at 65 for a female currently aged 50 (years) 26.8 26.7 25.3

Average expected remaining life of a 65 year old retired female (years) 24.6 24.5 24.1

Discount rate 3.4 4.3 4.6

The financial assumptions reflect the nature and term of the Fund’s liabilities. The mortality assumptions are based on analysis of the Fund

members, and allow for expected future improvements in mortality rates. It has been assumed that members exchange 25% of their pension

for a cash lump sum at retirement and 30% of deferred members take the PIE option at retirement.

Sensitivity to changes in assumptions

The key assumptions used for IAS 19 are discount rate, inflation and mortality. If different assumptions were used, this could have a material

effect on the results disclosed. The sensitivity of the results (excluding unrecoverable notional surplus) to these assumptions is as follows:

Expected Expense for 15/16

Service

Cost

£m

Net

Interest

£m

Total P&L

Charge

£m

March 2015

Deficit

£m

Current Figures (excluding unrecoverable notional surplus) 0.8 0.6 1.4 (24.5)

Effect of a 0.1% decrease in the discount rate – 0.5 0.5 (16.0)

Recalculated value 0.8 1.1 1.9 (40.5)

Effect of a 0.1% increase in the inflation assumption – 0.4 0.4 (12.0)


Effect of a 1 year increase in life expectancy – 1.0 1.0 (30.0)




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The above sensitivities assume that, with the exception of the annuity contracts, the Fund’s assets remain unchanged due to changes in

assumptions, but in practice changes in market interest and inflation rates will also affect the value of the Fund’s assets. The Company and

Trustee have agreed a long term strategy for reducing investment risk as and when appropriate. This includes an asset-liability matching policy

which aims to reduce the volatility of the funding level of the Fund by investing in assets which perform in line with the liabilities of the Fund. In

December 2008 and June 2009, certain obligations relating to retired members were fully hedged by the purchase of annuity contracts. The

Fund’s other investments include matching assets which protect against changes in bond yields and against inflation risk. The respective

interest rate and inflation hedge ratios for these assets as at 31 March 2015 were both 26% of those obligations not covered by annuity

contracts.

The Company recognises no liabilities on its balance sheet, or charges or credits in its income statement or statement of recognised income

and expense in relation to the Fund. The legal sponsor of the Fund is Dairy Crest Limited.

Defined Contribution Pension Scheme

The Group has charged £6.6 million in respect of the Dairy Crest Group defined contribution scheme in the year ended 31 March 2015 (2014:

£7.0 million). The Company has made no charge in respect of the Dairy Crest Group defined contribution scheme in the year ended 31 March

2015 (2014: nil).


21 Trade and other payables


2015

£m

2014

£m

2015

£m

2014

£m

Trade payables* 100.3 131.2 – –

Amounts due to subsidiary undertakings – – 36.9 –

Other tax and social security 3.6 4.2 – –

Other creditors* 9.7 15.8 – –

Accruals* 54.5 67.1 3.1 3.8

168.1 218.3 40.0 3.8

* Financial liabilities at amortised cost.

22 Deferred income

Current2015

£m

2014

£m

Grants 1.6 1.7

Non-current

Grants 6.2 7.8

In 2010/11 two new biomass boilers were installed at the Davidstow cheese manufacturing site. Capital expenditure amounted to £3.9 million

and we received cash grants of £0.8 million during the year ended 31 March 2011 and £0.2 million during the year ended 31 March 2012 from

the South West of England Regional Development Agency. This grant is conditional upon certain conditions principally regarding continued

use and ownership of the boilers until 29 November 2014. In the year ended 31 March 2013, £0.4 million of this grant was voluntarily repaid in

order to receive annual renewable heat incentives. The conditions concerning the remaining outstanding grant are unchanged.

In 2012/13 the Group announced that it was consolidating its spreads manufacturing in to a single site at Kirkby, Liverpool. During 2012/13 the

Group received a grant of £5.3 million under the Regional Growth Fund from the Department of Business, Innovation and Skills in relation to

this project. This grant is conditional upon certain conditions over a five year term, principally the project being completed and creating or

safeguarding the agreed number of jobs.



24 Share capital

Authorised2015

Thousands

2014

Thousands

Ordinary shares of 25 pence each 240,000 240,000

Issued and fully paid Thousands £m

At 31 March 2013 136,596 34.1

Issued for cash on exercise of share options 113 0.1

At 31 March 2014 136,709 34.2

Issued for cash on exercise of share options 866 0.2

Issued for cash to ESOP at par 150 –

At 31 March 2015 137,725 34.4

During the year ended 31 March 2015 1,016,309 shares were issued at a premium of £2.2 million for an aggregate consideration of £2.4

million (2014: 113,558 shares at a premium of £0.1 million for an aggregate consideration of £0.2 million). Exercises of management share

options are fulfilled by the transfer of existing shares from the Dairy Crest Employees’ Share Ownership Plan (‘ESOP’) – see note 25.

23 Provisions

Onerous

contracts

£m

Site

restructuring

and

rationalisation

£m

Total

£m

At 31 March 2013 – current 1.7 – 1.7

Utilised (0.2) – (0.2)

Discount unwind 0.2 – 0.2

At 31 March 2014 – current 1.7 – 1.7

Settled on disposal (1.7) – (1.7)

Charged during the year – 3.1 3.1

At 31 March 2015 – current – 3.1 3.1

Onerous contract

In June 2010, the Group disposed of 50% of the share capital of Wexford Creamery Limited (‘WCL’). As part of the disposal, the Group

entered into an agreement to purchase guaranteed minimum volumes of cheese from WCL for a period of five years from the date of disposal.

The price paid by the Group for that cheese is determined by reference to cost plus margin. Realisations for commodity cheese fluctuate and

at the date of disposal a provision of £3.6 million was charged in order to provide for the cost of the cheese purchase arrangements. On 16

May 2014, following the sale of its remaining shareholding in WCL, the remaining onerous contract provision of £1.7 million was released.

Restructuring and rationalisation of operating sites

During the year, the Group provided through exceptional operating items, decommissioning and demolition costs associated with the Spreads

restructuring project and redundancy costs in relation to the closure of the Chard site.


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25 Notes to statement of changes in equity

Consolidated

The shares held by the ESOP are available to satisfy awards under the Company’s management share option schemes (see Note 26).

At 31 March 2015 the ESOP held 90,768 shares (2014: 129,024 shares) in the Company at a cost of £0.1 million (2014: £0.6 million). The ESOP

was established in August 1996 to acquire shares in the Company in order to hedge certain future obligations of the Group including shares

awarded under the Company’s management share option schemes. During the year the Trustee of the ESOP transferred 188,256 (2014:

1,085) shares following exercises of options and subscribed for 150,000 shares at 25 pence per share. The market value of the shares held by

the ESOP, which are listed on the London Stock Exchange was £0.4 million at 31 March 2015 (2014: £0.6 million).

Other reserves – Consolidated

Merger

reserve

£m

Hedging

reserve

£m

Translation

reserve

£m

Other

reserves

£m

At 31 March 2014 55.9 (2.1) (1.5) 52.3

Total recognised in other comprehensive income – (0.9) – (0.9)

At 31 March 2015 55.9 (3.0) (1.5) 51.4

At 31 March 2013 55.9 (3.0) (1.5) 51.4

Total recognised in other comprehensive income – 0.9 – 0.9

At 31 March 2014 55.9 (2.1) (1.5) 52.3

The merger reserve includes the premium on shares issued to satisfy the purchase of Dairy Crest Limited in 1996. The cumulative amount of

goodwill charged against the merger reserve is £86.8 million (2014: £86.8 million). The reserve is not distributable.

The hedging reserve records the gains and losses on hedging instruments, to the extent that they are effective cash flow hedges. Any gains

and losses previously recorded in the hedging reserve are reclassified in profit and loss when the underlying hedged item affects profit and

loss.

The translation reserve records exchange differences arising from the translation of the accounts of foreign currency denominated subsidiaries

offset by the movements on loans and derivatives designated to hedge the net investment in foreign subsidiaries.

Parent Company

As permitted by section 408 of the Companies Act 2006, no separate profit and loss account is presented for the Company. The profit for the

year dealt with in the accounts of the Company is £8.3 million (2014: £24.7 million) including dividends received from subsidiary companies of

£8.5 million (2014: £25.3 million). Dividends paid amounted to £29.2 million (2014: £28.5 million) which, along with a debit for share-based

payments of £0.4 million (2014: £0.3 million credit) resulted in a £21.3 million decrease in retained earnings (2014: £3.5 million decrease).

In 1996 the Company acquired the entire issued share capital of Dairy Crest Limited. Consideration was in the form of cash and the issue of

109.8 million ordinary shares of 25 pence each. The fair value of the shares issued was estimated as £170.2 million. The capital reserve of

£142.7 million, shown in the statement of changes in equity, represents the difference between the fair value of shares issued and their

nominal value of £27.5 million.

26 Share based payment plans

Group

The Group has five share option schemes in operation.

The Dairy Crest Long Term Incentive Share Plan (‘LTISP’)

This is a long term incentive scheme under which awards are made to Directors and senior managers consisting of the right to acquire shares

for a nominal price subject to the achievement of financial targets based on (i) total shareholder returns (‘TSR’) over a three year period versus

comparator companies and (ii) growth in adjusted basic earnings per share. From 2009, the TSR element was increased from 50% to 60% of

the awards granted. The vesting period for grants made under this scheme is 3 years with an exercise period of 7 years. There were no

awards granted in the year ended 31 March 2015 (2014: nil). There are no cash settlement alternatives.

Dairy Crest Sharesave Scheme

All employees are eligible to join the Dairy Crest Sharesave Scheme, which allows employees to use regular monthly savings to purchase

shares. Options are granted at a discount of up to 20% of the market value of the shares. No financial performance criteria are attached to

these options and they vest three years from the date of grant with an exercise period of six months. In June 2014, 1,467,484 options were

granted under the Dairy Crest Sharesave Scheme at a price of 376 pence (June 2013: nil). There are no cash settlement alternatives.

Deferred Bonus Plan (‘DBP’)

From 2005/06, bonuses earned that are in excess of 50% of basic salary are deferred in shares (and from 2011 in share options) with a vesting

period of 3 years. The only vesting condition is continuing employment. The cost of these shares is charged over 4 years (being the year the

bonus was earned and the three-year vesting period) and is based on the number of shares issued (or from 2011 over which nil cost options

are granted) and the share price at the date of issue. During the year ended 31 March 2015, 65,086 deferred shares were awarded in relation

to the year ended 31 March 2014 (2014: nil).



The Dairy Crest Long Term Alignment Plan (‘LTAP’)

The LTAP replaced the LTISP in the year ended 31 March 2014. This is a long term incentive scheme under which awards are made to

Directors and senior managers consisting of the right to acquire shares for a nominal price. The vesting period for grants made under this

scheme is 50% of the award after 4 years and 50% after 5 years. Pre-grant performance criteria determine the amount of any initial grant after

which there are no significant performance conditions prior to vesting. As such, these options are fair valued at 100% of the price at the date

of the grant.

The Transformational Incentive Award (‘TIA’)

The TIA was granted, under the rules of the LTISP, in December 2014. The TIA is a nil price option to acquire ordinary shares subject to certain

performance objectives being met in addition to continuing employment. The performance objectives relate to three categories detailed

below:

1) managing the competition approval process relating to the proposed Dairies operation disposal;

2) appropriate reshaping of the Group, taking into account the competition approval process; and

3) establishing a successful future business, by reference to the development of the Group, including delivering value to shareholders.

The vesting period is three years from the date of grant. In December 2014, 236,843 shares were awarded under the TIA. There are no cash

settlement alternatives.

The number of share options and weighted average exercise price for each of the principal schemes is set out as follows:

LTAP * TIA * DBP * LTISP * Sharesave Scheme

number number number number number

weighted

average

exercise

price

(pence)

Options outstanding at 1 April 2014 337,595 – 2,875 985,198 2,994,777 276.0

Options granted during the year 380,273 236,843 65,086 – 1,467,484 376.0

Reinvested dividends 20,395 3,780 973 57,931 – –

Options exercised during the year – – – (169,241) (866,309) 266.3

Options forfeited during the year (21,326) – – (677,151) (476,509) 318.2

Options outstanding at 31 March 2015 716,937 240,623 68,934 196,737 3,119,443 319.3

Exercisable at 31 March 2015 – – – 196,737 62,607 –

Options outstanding at 1 April 2013 – – – 2,000,800 3,526,048 275.4

Options granted during the year 333,953 – 2,875 – – –

Reinvested dividends 3,642 – – 94,469 – –

Options exercised during the year – – – (57,573) (68,369) 264.4

Options forfeited during the year – – – (1,052,498) (462,902) 273.1

Options outstanding at 31 March 2014 337,595 – 2,875 985,198 2,994,777 276.0

Exercisable at 31 March 2014 – – – 177,231 – –

* The weighted average exercise price for LTAP, TIA, DBP and LTISP options is nil.

Sharesave scheme options are exercisable up to February 2018 at prices ranging from 265p to 376p (March 2014: exercisable up to

September 2016 at prices ranging from 265p to 281p). LTISP options are exercisable at varying dates up to July 2022 (March 2014: July 2022).

LTAP options are exercisable at varying dates up to December 2024 (March 2014: August 2023). DBP options are exercisable at varying dates

up to December 2024 (March 2014: June 2023). TIA options are exercisable up to December 2024.

The remaining weighted average contractual life of options outstanding at March 2015 is 7.1 years for the LTISP, 9.1 years for the LTAP, 9.6

years for the DBP, 9.8 years for the TIA and 2.0 years for the Sharesave Scheme (2014: LTISP 8.1 years, LTAP 9.4 years, DBP 8.3 years and

Sharesave Scheme 2.1 years). The weighted average share price on exercise of Sharesave options was £3.19 (2014: £2.76).

The fair value factor of the Sharesave Scheme options issued in June 2014 was 17.9% giving a fair value of £0.83 per option granted. This has

been computed using a Black-Scholes option pricing model. The key assumptions used in the valuation model were expected share price

volatility 22%, risk free rate of interest 1.55% and dividend yield 4.40%. The volatility assumption is based on the historical volatility of the Dairy

Crest Group plc share price over a period commensurate with the expected option life, ending on the grant date of option.

The fair value of TIA options issued on 23 December 2014 was £4.91 per option granted. This has been computed using a Black-Scholes

option pricing model. The key assumptions used in the valuation model were expected share price volatility 24% and a risk free rate of interest

0.85%. The volatility assumption is based on the historical volatility of the Dairy Crest Group plc share price over a period commensurate with

the expected option life, ending on the grant date of option.

The Group expense arising from share option plans for the year ended 31 March 2015 was £1.7 million (2014: £1.5 million) (See Note 9).

26 Share based payment plans continued


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Company

The number of share options and weighted average exercise price for each of the schemes for employees of the Company is setout as

follows:

LTAP TIA DBP LTISP Sharesave Scheme

number number number number number

weighted

average

exercise

price

(pence)

Options outstanding at 1 April 2014 179,857 – 2,875 406,757 9,606 281.0

Options granted during the year 201,611 236,843 65,086 – 11,966 376.0

Reinvested dividends 10,845 3,780 973 22,199 – –

Options exercised during the year – – – (76,626) – –

Options forfeited during the year – – – (278,975) – –

Options outstanding at 31 March 2015 392,313 240,623 68,934 73,355 21,572 333.7


Options outstanding at 1 April 2013 – – – 777,916 12,808 281.0

Options granted during the year 177,919 – 2,875 – – –

Reinvested dividends 1,938 – – 34,221 – –

Adjustment for change of director during the year – – – (165,222) (3,202) –

Options exercised during the year – – – – – –

Options forfeited during the year – – – (240,158) – –

Options outstanding at 31 March 2014 179,857 – 2,875 406,757 9,606 281.0


Sharesave Scheme options are exercisable up to February 2018 at a price of 376p (March 2014: up to September 2016 at a price of 281p).

LTISP options are exercisable at varying dates up to July 2022 (2014: July 2022). LTAP options are exercisable at varying dates up to

December 2024 (March 2014: August 2023). DBP options are exercisable at varying dates up to December 2024 (March 2014: June 2023).

TIA options are exercisable up to December 2024.

The remaining weighted average contractual life of options outstanding at March 2015 is 7.3 years for the LTISP, 9.1 years for the LTAP, 9.6

years for the DBP, 9.8 years for the TIA and 2.3 years for the Sharesave Scheme (2014: LTISP 8.1 years, LTAP 9.4 years, DBP 8.3 years and

Sharesave Scheme 2.4 years). 76,626 LTISP options were exercised during the year ended 31 March 2015 (2014: nil).

The Company expense arising from share option plans for the year ended 31 March 2015 was £0.5 million (2014: £0.3 million).

26 Share based payment plans continued



27 Commitments and contingencies

The Group has entered into commercial leases on certain land and buildings, vehicles and equipment. There are no material renewal options,

escalation clauses or purchase options included in the lease contracts. There are no contingent rentals or operating leases or material

sub-leases. There are no significant restrictions placed upon the lessee by entering into these leases. Excluding land and buildings, these

leases have an average life of between three and seven years.

During the year ended 31 March 2015, certain assets at the Severnside facility were sold for cash consideration of £1.4 million. This equipment

has been leased back under an operating lease with a 5 year term. There are no purchase option clauses or any contingent lease rentals.

Future minimum rentals payable under non-cancellable operating leases as at 31 March are as follows:

2015

£m

2014

£m

Within one year 20.0 21.0

After one year but not more than five years 25.8 33.0

More than five years 13.1 13.9

Finance leases

The Group repaid all finance lease liabilities during the year ended 31 March 2015. In the prior year, the finance leases principally comprised

certain items of plant and equipment at the Davidstow site.

2015 2014

Minimum

payments

£m

Present

value of

payments

£m

Minimum

payments

£m

Present

value of

payments

£m

Within one year 1.9 1.8

After one year but not more than two years – – – –

After two years but not more than five years – – – –

After more than five years – – – –

Total minimum lease payments – – 1.9 1.8

Less: amounts representing finance charges – (0.1) –

Present value of minimum lease payments – – 1.8 1.8

Trading guarantees

The Group has provided guarantees and counter-indemnities which totalled £1.7 million at 31 March 2015 (2014: £4.0 million). These

guarantees are made principally by Philpot Dairy Products Limited, a subsidiary company, to customers as performance bonds and to the

Rural Payment Agency in relation to EU subsidies claimed.

Capital commitments

Consolidated

2015

£m

2014

£m

Future capital expenditure contracted on property, plant and equipment 21.6 70.9


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29 Business combinations and disposals

Year ended 31 March 2015

Disposal of business and assets of FoodTec UK Limited

On 29 July 2014, the Group completed the sale of the business and assets of FoodTec UK Limited for a cash consideration of £1.2 million,

realising a loss on disposal of £0.4 million. The carrying value of the assets sold was £1.6 million representing net working capital (£1.5 million)

and tangible fixed assets (£0.1 million).

Disposal of remaining interest in Wexford Creamery Limited

On 16 May 2014, the Group completed the sale of its 30% shareholding in Wexford Creamery Limited for €3.4 million (£2.8 million), realising a

gain on disposal of £0.6 million. The net carrying value at disposal was £2.2 million, comprising investment (£1.1 million), share of associate’s

loss (£0.3 million) and deferred consideration (£1.4 million).

Year ended 31 March 2014

Disposal of Northern Depots

As part of the ongoing rationalisation of the depot network, on 27 July 2013, the Group completed the disposal of seven depots located in the

north-west of England for a cash consideration of £1.2 million. The carrying value of assets sold was £0.8 million including net working capital

and fees of £0.1 million resulting in a profit on disposal of £0.3 million. The gain on disposal of these depots has been included in other income

– property in the consolidated income statement.

Disposal of Discontinued Operation

£1.4 million of the original tax provision resulting from the trading of St Hubert SAS (‘St Hubert’) up to its disposal in August 2012 was released

back to the income statement as discontinued operations. The provision for taxes crystallising as a result of the disposal is unchanged.

Acquisitions

During the year ended 31 March 2015, the Group acquired 3.5% of the share capital of HIECO Limited for a consideration of £0.1 million and

acquired 50% of the share capital of Promovita Ingredients Limited for a consideration of £0.1 million (see Note 13).

28 Related party transactions

The Group’s only significant related party was its associate, Wexford Creamery Limited (‘WCL’). During the period to the disposal on 16 May

2014, the Group purchased cheese at a cost of £0.5 million from WCL (2014: £6.4 million).

Compensation of key management personnel of the Group and Company2015

£m

2014

£m

Short-term employee benefits 2.1 3.4

Share-based payments 0.5 0.3

Total compensation paid to key management personnel* 2.6 3.7

* Further details relating to compensation of key management personnel are set out in the Directors’ Remuneration Report. This includes a description of pension

arrangements and any cash supplements paid.

Key management personnel comprise Executive and Non-executive Directors of Dairy Crest Group plc. The senior management team is small

and all key decisions are made by either the three Executive Directors or by the Group Board which meets regularly.

Dairy Crest Limited, a subsidiary company, incurred costs of £2.1 million (2014: £3.4 million) from the Company for the provision of

management and administrative services carried out on its behalf. Dairy Crest Limited received £2.0 million (2014: £3.2 million) for the

remuneration of the Company’s employees which had been paid by Dairy Crest Limited.

Interest charges of £3.7 million (2014: £2.9 million) were incurred by the Company from Dairy Crest Limited on loans reflecting an interest rate

of LIBOR+100 basis points. Interest income of £11.0 million (2014: £11.3 million) was received by the Company from Dairy Crest Limited on

loans reflecting an interest rate of 5.3% (2014: 5.3%) and a further £0.3 million was received by the Company from Dairy Crest UK Limited on

floating rate loans paying LIBOR plus margin (2014: £0.3 million). The Company paid no interest (2014: £nil) to Dairy Crest Limited on cross-

currency swaps paying LIBOR and receiving EURIBOR.



30 Financial risk management objectives and policies

The objective of the treasury function, which is accountable to the Board, is to manage the Group’s and Company’s financial risk, secure

cost-effective funding for the Group’s operations and to minimise the effects of fluctuations in interest rates and exchange rates on the value of

the Group’s and Company’s financial assets and liabilities, on reported profitability and on cash flows.

The Group’s principal financial instruments comprise bank loans and overdrafts, loan notes, finance leases and cash and short-term deposits.

The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets

and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The Group also enters into derivative transactions; principally cross currency swaps and forward currency contracts. The purpose is to

manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout 2014

and 2015, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are liquidity risk, interest rate risk, foreign currency risk, price risk and credit risk.

Information on how these risks arise is set out below, as are the objectives, policies and processes agreed by the Board for their management

and the methods used to measure each risk. Derivative instruments are used to change the economic characteristics of financial instruments

in accordance with the Group’s treasury policies. The Group’s accounting policies in relation to derivatives are set out in the Accounting

Policies note.

Liquidity risk

The Group’s objectives are:

to ensure that forecast peak net borrowings, plus a prudent operating headroom are covered by committed facilities which mature after at

least 12 months;

to ensure that prudent headroom versus bank and loan note covenant ratios are forecast for the next three years;

to maintain flexibility of funding by employing diverse sources of funds (eg use of non-bank markets such as private placements); and

to avoid a concentration of facility maturities in any particular year.

The maturity analysis of Group borrowings is set out in Note 19. At 31 March 2015 the Group’s total credit facilities amounted to £393.3 million

(2014: £414.0 million) excluding finance leases of £nil (2014: £1.8 million) and the impact of cross-currency swaps on US Dollar and Euro loan

notes of £13.9 million (2014: £2.1 million). The facilities at 31 March 2015 and 31 March 2014 consisted of:

£170 million plus €90 million multi-currency revolving credit facility repayable at maturity in October 2016; and

loan notes totalling £158.2 million repayable between April 2016 and November 2021.

Undrawn revolving credit facilities at 31 March 2015 amounted to £130.1 million (2014: £208.4 million). Effective headroom including cash and

short term deposits amounted to £180.7 million (2014: £275.7 million).

The Group aims to mitigate liquidity risk by closely managing cash generation by its operating businesses and by monitoring performance to

budgets and forecasts. Capital investment is carefully controlled, with detailed authorisation limits in place up to Executive level and cash

payback criteria considered as part of the investment appraisal process. Short term and long term cash and debt forecasts are constantly

reviewed and there are regular treasury updates to the Executive highlighting facility headroom and net debt performance.

Day-to-day cash management utilises undrawn revolving credit facilities, overdraft facilities and occasionally short-term money market

deposits if there is excess cash.

Interest rate risk

The Group’s exposure to the risk for changes in market interest rates relate primarily to the Group’s long term debt obligations with a floating

interest rate.

The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. The Group’s long term strategy is to keep between

one third and three quarters of its borrowings at fixed rates of interest in the medium term. To manage this mix in a cost-efficient manner, the

Group has issued fixed coupon loan notes and also enters into interest rate swaps from time to time on a portion of its floating bank

borrowings, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts

calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt interest cash

flow obligations. In the short-term the proportion of fixed and floating rate borrowings can go outside the long term range.

At 31 March 2015, 60% of the Group’s borrowings were at a fixed rate of interest (2014: 83%). Following the maturity and repayment of loan

notes in April 2014 and April 2013, the amounts drawn under revolving credit facilities have increased in 2014/15 and the fixed rate percentage

of borrowings has fallen. In addition, there have been significant one-off cash flows in the year in relation to the Demineralised Whey and GOS

and Spreads restructuring projects. In the medium term we expect the fixed proportion of borrowings to be in the target range.

The Group’s borrowing facilities require minimum interest cover of 3.0 times.

The Group’s exposure to interest rate risk is shown (by way of a sensitivity analysis) in Note 31.

Foreign currency risk

The Group has no significant operations outside the UK. However it buys and sells a small amount of goods in currencies other than Sterling.

As a result the value of the Group’s non-Sterling revenues, purchases, assets, liabilities and cash flows can be affected by movements in

exchange rates – predominantly Euro/Sterling.

The majority of the Group’s transactions are carried out in the relevant entity’s functional currency and therefore transaction exposures are

limited. It can be seen in Note 16 that the only significant non-Sterling debtors are in US Dollar (2015: £1.9 million) and Euro (2015: £1.3 million).


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30 Financial risk management objectives and policies continued

The Group trades skimmed milk products and bulk butter mainly to customers in Europe and Central and South America. The Group also

exports its own skimmed milk products, bulk butter and other branded products. The Group’s policy requires foreign currency sales and

purchases through Philpot Dairy Products Limited, a subsidiary company, to be hedged by foreign exchange contracts once the transaction is

committed so that the margin on the transaction can be fixed.

Currency exposures on other transactions, such as certain capital expenditure denominated in a foreign currency, are hedged following

approval of the project using forward foreign exchange contracts.

In 2006, 2007 and 2011 the Group issued loan notes denominated either in $US, € or £. Cross-currency swaps were implemented as required

to hedge the interest and principal repayment cash flows. These have the effect of fixing the liability and coupon in Sterling. The principal

amount and interest and principal payment dates on these swaps match those on the loan notes exactly and all swaps are with counterparties

with strong credit ratings. There is no profit and loss exposure in relation to $US or € note debts as any retranslation impact on the profit and

loss account is offset by reclassification of amounts from other comprehensive income into profit and loss.

Price risk

The Group is exposed to price risk related to certain commodities and their by-products used by the Group’s businesses. The principal

non-milk commodities that affect input prices for the Group are vegetable oils, gas, electricity, diesel, heavy fuel oil and crude oil by-products

(used in packaging).

The Group monitors prices on an ongoing basis in order to assess the impact that movements have on profitability and to assess whether the

amount of forward cover is appropriate. This includes vegetable oil contracts and energy, which is generally contracted one season in

advance for both summer and winter energy but with some requirement contracted at more regular intervals.

The Group regularly reviews relevant commodity markets and levels of future cover. Fixed price contracts are only entered into with the

approval of the Commodity Risk Committee comprising senior operational and finance management and external advisers.

Credit risk

It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. The Group only offers

these terms to recognised, creditworthy third parties. In addition, receivables balances are monitored on an ongoing basis with the result that

the Group’s history of bad debt losses is not significant.

The Dairies’ doorstep business trades with individuals and receives cash payments on a weekly basis. Cash and debt management is a

crucial part of this business and cash collection and balances due are closely monitored to ensure write-downs are minimised.

Debtor days outstanding are closely monitored throughout the year and action is taken promptly when payment terms are breached.

With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, trade and other

debtors (excludes prepayments) and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counterparty.

The maximum exposure for the Group is equal to the carrying amount of these financial assets of £153.6 million (2014: £189.3 million).

All revolving credit facility borrowings are through banks with long term credit ratings of A or above. Funds temporarily surplus to business

requirements are invested overnight through deposit accounts with mainstream UK commercial banks with a credit rating of A or better. The

Group currently has no requirement to place deposits for a longer period, accordingly counterparty risk is considered to be acceptable.

Derivative financial instruments are contracted with a range of banks with long term credit ratings of A or above to avoid excessive

concentration of financial instruments with one counterparty.

Capital management

The primary objective of the Group’s capital management is to ensure that it maintains an appropriate level of gearing in order to support its

business and maximise shareholder value. In addition, the Group monitors its forecast net debt to EBITDA ratios in order that they are

comfortably within its banking covenant requirements. The maximum net debt to EBITDA ratio for the purposes of bank covenants is 3.5

times. At 31 March 2015 the ratio of net debt to EBITDA was 1.97 times (March 2014: 1.31 times).

The Group monitors its capital structure and makes adjustments to it in the light of changes in economic conditions or changes in Group

structure. Possible mechanisms for changing capital structure include adjusting the level of dividends, issuance of new shares or returning

capital to shareholders. No significant changes in capital structure have been implemented in the year ended 31 March 2015 or the prior year.

The Group monitors capital using a gearing ratio, which is net debt divided by shareholders’ funds. The analysis of net debt is included in Note

33. The gearing ratio at 31 March 2015 and 31 March 2014 can be analysed as follows:

2015

£m 2014

£m

Net debt 198.7 142.2

Shareholders’ funds 289.8 289.4

Gearing ratio 69% 49%

Dividends

Details of dividends paid and proposed during the year are given in Note 7. The dividend policy is to maintain a progressive dividend whilst

seeking to maintain a level of dividend cover between 1.5 and 2.5 times. The final proposed dividend for 2014/15 is 15.7 pence up 0.3 pence

from last year (2014: 15.4 pence). Total dividends paid and proposed in respect of the year ended 31 March 2015 amount to 21.7 pence (2014:

21.3 pence).



31 Financial instruments

An explanation of the Group’s financial instrument risk management objectives, policies and strategies are set out in the discussion of Treasury

policies in Note 30.

Consolidated

Interest rate maturity profile of financial assets and liabilities

The following table sets out the carrying amount, by maturity of the Group’s financial assets and liabilities that are exposed to interest rate risk.

No other financial assets and liabilities, other than those shown below, are exposed directly to interest rate risk.

< 1 year

£m

>1 <2 years

£m

>2 <3 years

£m

>3 <4 years

£m

>4 <5 years

£m

> 5 years

£m

Total

£m

At 31 March 2015

Fixed rate

Loan notes* – (92.9) (10.5) (16.8) – (38.0) (158.2)

Forward currency contracts (0.2) – – – – – (0.2)

Cross currency swaps – 14.4 (1.5) 0.4 – (0.5) 12.8

Floating rate

Bank loans – (105.0) – – – – (105.0)

Cash at bank and in hand 50.6 – – – – – 50.6

At 31 March 2014

Fixed rate

Loan notes* (25.3) – (83.8) (11.6) (15.0) (33.8) (169.5)

Finance leases (1.8) – – – – – (1.8)

Forward currency contracts 0.4 – – – – – 0.4

Deferred consideration – 1.4 – – – – 1.4

Cross currency swaps (2.0) – 5.4 (0.3) (1.4) (4.5) (2.8)

Floating rate

Bank loans – – (36.0) – – – (36.0)

Option to sell 20% holding in WCL – – – – 1.6 – 1.6

Cash at bank and in hand 67.3 – – – – – 67.3

* Classified as fixed rate after taking into account the effect of interest rate swaps.

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments

classified as fixed rate is fixed until the maturity of the instrument.

Interest rate risk

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the

Group’s profit before tax through the impact on floating rate borrowings. There is no material impact on the Group’s equity resulting from

movements in interest rates other than in relation to the $US/GBP and EUR/GBP cross-currency swaps used as a cash flow hedge on $US

and EUR loan notes. The impact on equity is nil over the life of the instruments as these swaps comprise an effective hedge. At 31 March

2015, 60% of Group borrowings were at fixed rates of interest (2014: 83%) (see Note 30).

The sensitivity analysis excludes all non-derivative fixed rate financial instruments carried at amortised cost but includes non-derivative floating

rate financial instruments except those where interest rate swaps have been used as cash flow hedges. This is due to the fact that gains and

losses on the hedging instrument offset losses and gains on the non-derivative floating rate financial instrument which are subject to the

hedge and are matched in both profit and loss and cash terms. No non-derivative fixed rate financial instruments have profit and loss exposure

due to floating rates as a result of interest rate swaps.


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The 2015 analysis below reflects lower reasonably possible changes in interest rates to 2014 – upside LIBOR expectations assumed last year

were not realised and the assumption is that base rates will increase less than anticipated at March 2014.

Increase/

decrease in

basis points

Effect on

profit

before tax

£m

Effect on

equity

£m

2015

Sterling +100 1.1 –

Sterling -50 (0.5) –

2014

Sterling +100 0.4 –

Sterling -50 (0.2) –

Equity price risk

The Group holds no listed equity investments and is not subject to equity price risk other than through the pension scheme (see Note 20).

Credit risk

There are no significant concentrations of credit risk within the Group unless otherwise disclosed. The maximum credit risk exposure relating

to financial assets is represented by carrying value as at the balance sheet date (see Note 30).

Liquidity risk

The Group’s policy on managing its liquidity risk is set out in Note 30. The table below summarises the maturity profile of the Group’s financial

liabilities at 31 March 2015 and 2014 based on contractual undiscounted payments of interest and principal.

< 1 year

£m

>1 <2 years

£m

>2 <3 years

£m

>3 <4 years

£m

>4 <5 years

£m

> 5 years

£m

Total

£m

At 31 March 2015

Loan Notes (8.0) (95.5) (12.6) (18.7) (1.5) (40.4) (176.7)

Cross-currency swaps (on loan notes):

payment leg (6.5) (73.0) (11.4) (18.1) (1.6) (38.8) (149.4)

receipt leg 7.3 85.3 9.8 18.7 1.5 40.4 163.0

Bank loans – (105.0) – – – – (105.0)

At 31 March 2014

Loan Notes (32.6) (7.3) (86.2) (13.4) (16.7) (37.3) (193.5)


payment leg (33.3) (6.5) (73.0) (11.4) (18.1) (40.4) (182.7)

receipt leg 31.9 6.6 76.1 10.6 16.7 37.3 179.2

Bank loans – – (36.0) – – – (36.0)

Finance leases (1.8) – – – – – (1.8)

Forward currency contracts and short-term payables all mature within one year.

Fair values of financial assets and financial liabilities

The carrying amounts and the fair values of all of the Group’s financial instruments that are carried in the financial statements are the same,

with the exception of the loan notes. The carrying amount of the loan notes was £158.2 million and the fair value was £155.1 million. The fair

value of borrowings has been calculated by discounting the expected future cash flows at prevailing interest rates.

Cross currency swaps

The notional principal amount of the outstanding $US/GBP cross currency swap contracts at 31 March 2015 was $204.4 million (£137.7

million) (2014: $204.4 million (£122.4 million)). These cross currency swaps have both legs at fixed interest rates, are designated as cash flow

hedges and meet the criteria for hedge accounting. At 31 March 2015 the fixed interest rates varied from 3.863% to 5.305% (2014: 3.863% to

5.305%). Any gains / losses arising from fair value adjustments deferred in equity will reverse in the income statement (finance costs) during

the next one to eight years (being the life of the swaps).

The notional principal amount of the outstanding EUR/GBP cross currency swap contracts at 31 March 2015 was €10.7 million (£7.7 million)

(2014: €41.3 million (£36.5 million)). These cross currency swaps have both legs at fixed interest rates, are designated as cash flow hedges

and meet the criteria for hedge accounting. At 31 March 2015 the fixed interest rates varied from 5.470% to 5.600% (2014: 4.955% to 5.600%.

The loss deferred in equity will reverse in the income statement (finance costs) during the next year (being the life of the swaps).

31 Financial instruments continued



Forward currency contracts

The Group has entered into certain forward currency contracts in order to hedge the Sterling cost of currency-denominated future purchases

and receipts. These forward currency purchases have been designated cash flow hedges and meet the criteria for hedge accounting. They all

have a duration of less than one year and any gains or losses deferred will then be reclassified to the income statement (operating costs).


The Group has undrawn committed long term borrowing facilities available at 31 March 2015 of £130.1 million (2014: £208.4 million) in respect

of which all conditions precedent had been met at that date. Undrawn facilities expire in October 2016.

Company

Interest rate maturity profile of financial assets and liabilities

The following table sets out the carrying amount, by maturity of the Company’s financial assets and liabilities that are exposed to interest rate

risk. No other financial assets and liabilities, other than those shown below, are exposed directly to interest rate risk.

At 31 March 2015< 1 year

£m

>1 <2 years

£m

>2 <3 years

£m

>3 <4 years

£m

>4 <5 years

£m

> 5 years

£m

Total

£m

Fixed rate

Loan notes* – (92.9) (10.5) (16.8) – (38.0) (158.2)

Intercompany receivables 179.8 – – – – – 179.8

Cross currency swaps – 14.4 (1.5) 0.4 – (0.5) 12.8

Floating rate

Intercompany payables (216.7) – – – – – (216.7)

At 31 March 2014

Fixed rate

Loan notes* (25.3) – (83.8) (11.6) (15.0) (33.8) (169.5)

Intercompany receivables 168.8 – – – – – 168.8

Cross currency swaps (2.0) – 5.4 (0.3) (1.4) (4.5) (2.8)

Floating rate

Intercompany payables (159.0) – – – – – (159.0)

* These have been classified as fixed rate after taking into account the effect of interest rate swaps.

Interest rate risk

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the

Company’s profit before tax through the impact on floating rate borrowings. There is no impact on the Company’s equity resulting from

movements in interest rates other than in relation to the $US/GBP and EUR/GBP cross-currency swaps used as a cash flow hedge on $US

and EUR loan notes. The impact on equity is nil over the life of the instruments as these swaps comprise an effective hedge.

The sensitivity analysis excludes all non-derivative fixed rate financial instruments carried at amortised cost but includes non-derivative floating

rate financial instruments except those where interest rate swaps have been used as cash flow hedges. This is due to the fact that gains and

losses on the hedging instrument offset losses and gains on the non-derivative floating rate financial instrument which are subject to the

hedge are matched in both profit and loss and cash terms. No non-derivative fixed rate financial instruments have profit and loss exposure

due to floating rates as a result of interest rate swaps.



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The 2015 analysis below reflects lower reasonably possible changes in interest rates to 2014 – upside LIBOR expectations assumed last year

were not realised and the assumption is that base rates will increase less than anticipated at March 2014.

Increases/

decrease in

basis points

Effect on

profit before

tax

£m

Effect on

equity

£m

2015

Sterling +100 – –

Sterling -50 – –

2014

Sterling +100 – –

Sterling -50 – –

Equity price risk

The Company holds no listed equity investments and is not subject to equity price risk.

Credit risk

The maximum exposure to credit risk is the carrying amount of financial assets.

Liquidity risk

The Company’s policy on managing its liquidity risk is set out in Note 30. The table below summarises the maturity profile of the Company’s

financial liabilities at 31 March 2015 and 2014 based on contractual undiscounted payments of interest and principal.

At 31 March 2015< 1 year

£m

>1 <2 years

£m

>2 <3 years

£m

>3 <4 years

£m

>4 <5 years

£m

> 5 years

£m

Total

£m

Loan Notes (8.0) (95.5) (12.6) (18.7) (1.5) (40.4) (176.7)


payment leg (6.3) (73.0) (11.4) (18.1) (1.6) (38.8) (149.2)

receipt leg 7.3 85.3 9.8 18.7 1.5 40.4 163.0

At 31 March 2014

Loan Notes (32.6) (7.3) (86.2) (13.4) (16.7) (37.3) (193.5)


payment leg (33.3) (6.5) (73.0) (11.4) (18.1) (40.4) (182.7)

receipt leg 31.9 6.6 76.1 10.6 16.7 37.3 179.2

Forward currency contracts and short-term payables and accruals all mature within one year.

Fair values of financial assets and financial liabilities

The amounts and fair values of all of the Company’s financial instruments that are carried in the financial statements are the same, with the

exception of the loan notes. The carrying amount of the loan notes was £158.2 million and the fair value was £155.1 million.

Cross currency swaps

External

The notional principal amount of the outstanding $US/GBP cross currency swap contracts at 31 March 2015 was $204.4 million (£137.7

million) (2014: $204.4 million (£122.4 million)). These cross currency swaps have both legs at fixed interest rates, are designated as cash flow

hedges and meet the criteria for hedge accounting. At 31 March 2014 the fixed interest rates varied from 3.863% to 5.305% (2014: 3.863% to

5.305%). Any gains/losses arising from fair value adjustments deferred in equity will reverse in the income statement (finance costs) during the

next one to eight years (being the life of the swaps).

The notional principal amount of the outstanding EUR/GBP cross currency swap contracts at 31 March 2015 was €10.7 million (£7.7 million)

(2014: €41.3 million (£36.5 million)). These cross currency swaps have both legs at fixed interest rates, are designated as cash flow hedges and

meet the criteria for hedge accounting. At 31 March 2014 the fixed interest rate varied from 5.470% to 5.600% (2014: 4.955% to 5.600%). The

loss deferred in equity will reverse in the income statement (finance costs) during the next year (being the life of the swaps).


The Company has undrawn committed long term borrowing facilities available at 31 March 2015 of £130.1 million (2014: £208.4 million) in

respect of which all conditions precedent had been met at that date. These undrawn facilities expire in October 2016.



32 Cash flow from operating activities

Year ended

31 March

2015

£m

Year ended

31 March

2014

£m

Profit before taxation – continuing operations 22.1 54.2

Finance costs and other finance income – continuing operations 9.9 10.4

Share of associate’s net loss/(profit) – (0.3)

Profit on operations 32.0 64.3

Depreciation 27.4 28.6

Amortisation of internally generated intangible assets 3.2 3.3

Amortisation of acquired intangible assets 0.4 0.4

Exceptional items 16.5 (10.6)

Release of grants (1.7) (1.7)

Share based payments 1.7 1.5

Profit on disposal of depots (17.6) (18.2)

Difference between pension contributions paid and amounts recognised in the income statement (13.8) (59.4)

R&D tax credits (0.8) (0.2)

Realised exchange loss on early loan note repayment and translation of foreign currency balances 0.8 0.8

Decrease/(increase) in inventories 15.4 (12.0)

Decrease/(increase) in receivables 22.8 (20.8)

(Decrease)/increase in payables (51.0) 10.2

Cash generated from/(used in) operations 35.3 (13.8)

No cash was generated from operations for the Company in the year ended 31 March 2015 (2014: nil).


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33 Analysis of net debt

Consolidated

At 1 April

2014

£m

Cash

flow

£m

Non-cash

movement

£m

Exchange

movement

£m

At 31 March

2015

£m

Cash and cash equivalents 67.3 (15.9) – (0.8) 50.6

Borrowings (current) (25.3) 25.3 – – –

Borrowings (non-current) (180.2) (69.0) – (14.0) (263.2)

Finance leases (1.8) 1.8 – – –

Debt issuance costs 1.1 – (0.9) – 0.2

(138.9) (57.8) (0.9) (14.8) (212.4)

Debt issuance costs excluded (1.1) – 0.9 – (0.2)

Impact of cross-currency swaps* (2.2) 2.1 – 14.0 13.9

Net debt (142.2) (55.7) – (0.8) (198.7)

At 1 April

2013

£m

Cash

flow

£m

Non-cash

movement

£m

Exchange

movement

£m

At 31 March

2014

£m

Cash and cash equivalents 276.1 (208.8) – – 67.3

Borrowings (current) (165.7) 159.4 (25.3) 6.3 (25.3)

Borrowings (non-current) (182.4) (36.0) 25.3 12.9 (180.2)

Finance leases (5.5) 3.7 – – (1.8)

Debt issuance costs 1.8 – (0.7) – 1.1

(75.7) (81.7) (0.7) 19.2 (138.9)

Debt issuance costs excluded (1.8) – 0.7 – (1.1)

Impact of cross-currency swaps* 17.8 – – (20.0) (2.2)

Net debt (59.7) (81.7) – (0.8) (142.2)

* The Group has $204.4 million and €10.7 million of loan notes against which cross-currency swaps have been put in place to fix interest and principal repayments in

Sterling (March 2014: $204.4 million and €41.3 million). Under IFRS, currency borrowings are retranslated into Sterling at year end exchange rates. The cross-currency

swaps are recorded at fair value and incorporate movements in both market exchange rates and interest rates. The Group defines net debt so as to include the

effective Sterling liability where cross-currency swaps have been used to convert foreign currency borrowings into Sterling. The £13.9 million adjustment included in

the above (March 2014: £2.2 million) converts the Sterling equivalent of Dollar and Euro loan notes from year end exchange rates (£145.4 million (March 2014: £156.8

million)) to the fixed Sterling liability of £131.5 million (March 2014: £158.9 million).

On 4 April 2014 there was a natural maturity of loan notes of (€30.6 million) £27.4 million.

Company

At 1 April

2014

£m

Cash

flow

£m

Non-cash

movement

£m

Exchange

movement

£m

At 1 March

2015

£m

Cash and cash equivalents – 0.2 – – 0.2

Borrowings (current) (25.3) 25.3 – – –

Borrowings (non-current) (144.2) – – (14.0) (158.2)

(169.5) 25.5 – (14.0) (158.0)

Borrowings (non-current) – impact of cross-currency swaps (2.2) 2.1 – 14.0 13.9

Net debt (171.7) 27.6 – – (144.1)

At 1 April

2013

£m

Cash

flow

£m

Non-cash

movement

£m

Exchange

movement

£m

At 1 March

2014

£m

Cash and cash equivalents 14.8 (14.8) – – –

Borrowings (current) (165.7) 159.4 (25.3) 6.3 (25.3)

Borrowings (non-current) (182.4) – 25.3 12.9 (144.2)

(333.3) 144.6 – 19.2 (169.5)

Borrowings (non-current) – impact of cross-currency swaps 17.8 – – (20.0) (2.2)

Net debt (315.5) 144.6 – (0.8) (171.7)



34 Corporate information

The consolidated accounts of Dairy Crest Group plc for the year ended 31 March 2015 were authorised for issue in accordance with a

resolution of the Directors on 20 May 2015 and the consolidated and Company balance sheets were signed on the Board’s behalf by

Mr M Allen and Mr T Atherton. Dairy Crest Group plc is a limited company incorporated in England and Wales and domiciled in the United

Kingdom whose shares are publicly traded on the London Stock Exchange.


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Consolidated income statement summary – continuing operations2011

£m

2012

£m

2013

£m

2014

£m

2015

£m

Product group revenue

Cheese 223.1 229.6 231.3 264.6 274.4

Spreads 183.2 211.3 194.5 177.4 170.0

Dairies 1,089.8 1,069.0 951.6 944.8 881.6

Other 6.1 4.8 4.2 4.2 3.8

Group 1,502.2 1,514.7 1,381.6 1,391.0 1,329.8

Product group profit*

Cheese 28.0 35.5 33.1 39.3 33.1

Spreads 18.6 23.2 25.5 16.8 33.8

Dairies 27.1 10.2 9.8 18.8 1.8

Associate (0.2) (0.3) – 0.3 –

Group including share of associate 73.5 68.6 68.4 75.2 68.7

Less: share of associate 0.2 0.3 – (0.3) –

Group 73.7 68.9 68.4 74.9 68.7

Amortisation of acquired intangibles (0.3) (0.8) (0.4) (0.4) (0.4)

Exceptional items (1.1) (93.9) (56.5) (10.4) (36.3)

Finance costs (20.6) (21.1) (18.7) (9.9) (8.1)

Other finance (expense)/income – pensions – 5.5 (3.5) (0.3) (1.8)

Share of associate net profit/(loss) (0.2) (0.3) – 0.3 –

Profit/(loss) before tax 51.5 (41.7) (10.7) 54.2 22.1

Adjusted profit before tax** 52.9 47.5 49.7 65.3 60.6

Balance sheet summary

Property, plant & equipment, goodwill, intangibles and investments 800.6 713.9 375.9 391.9 428.9

Inventories, receivables, payables, deferred income and provisions 21.9 45.8 74.1 109.6 116.2

Total operating assets 822.5 759.7 450.0 501.5 545.1

Financial instruments excluding amounts included in net debt 5.0 0.9 1.5 2.8 (1.3)

Tax (90.3) (70.1) (17.2) (15.0) (13.9)

Retirement obligations (60.1) (79.8) (67.2) (57.7) (41.4)

Net debt (311.6) (336.4) (59.7) (142.2) (198.7)

Shareholders’ equity 365.5 274.3 307.4 289.4 289.8

Cash flow summary

Generated from/(used in) operating activities 128.1 84.5 19.1 (13.8) 35.3

Fixed asset investments (net of grants) (48.5) (53.1) (46.0) (58.8) (80.1)

79.6 31.4 (26.9) (72.6) (44.8)

Interest paid (19.8) (23.6) (18.0) (14.0) (10.5)

Taxation repaid/(paid) (16.1) (14.1) (4.7) 2.1 –

Dividends paid (25.4) (26.5) (27.4) (28.5) (29.2)

Purchase of businesses and investments (0.1) (12.3) (0.6) – (0.1)

Other items (principally asset disposals) 7.4 20.3 354.3 30.5 28.1

Movement in net debt 25.6 (24.8) 276.7 (82.5) (56.5)

Basic earnings/(loss) per share from continuing operations (pence) 30.1 (29.1) (5.9) 35.8 15.0

Adjusted basic earnings per share from continuing operations (pence)** 29.9 28.9 29.4 40.8 38.0

* Profit on operations before exceptional items and amortisation of acquired intangibles.

** Before exceptional items, amortisation of acquired intangibles and pension interest.

GROUP FINANCIAL HISTORY


SHAREHOLDERS’ INFORMATION

Company Registrar and Shareholder Enquiries

If you have administrative enquiries concerning your shareholdings

in the Company, such as the loss of share certificates, change of

address, dividend payment arrangements or amalgamation of

accounts, please contact the Company’s registrar by writing to,

Capita Asset Services, The Registry, 34 Beckenham Road,

Beckenham, Kent BR3 4TU or by telephone on (UK) 0371 664 9266.

Calls are charged at the standard geographical rate and will vary by

provider. From overseas please call +44 800 181 4706. Calls from

outside the UK are charged at the applicable international rate. Lines

are open 9.00am to 5.30pm Monday to Friday.

Capita also provides online facilities for shareholders to check their

holdings and update their details. Registering is easy, and there is no

fee involved, simply access www.dairycrestshares.com

Payment of dividends

Shareholders may arrange to have their dividends paid directly into a

bank or building society account using the Bankers Automated

Clearing System (BACS). Bank mandate forms are available from

Capita whose details appear above or you can register your

mandate details online at www.dairycrestshares.com

Low cost share dealing service

If you do not have share dealing arrangements in place, Dairy Crest

has a low cost share dealing service arranged by Capita Share

Dealing Services. Shareholders wishing to use the service should

either visit the Capita Share Dealing website at www.capitadeal.com

or call 0371 664 0445. Calls are charged at the standard

geographical rate and will vary by provider. From overseas please

call +44 203 367 2686. Calls from outside the UK are charged at the

applicable international rate. Lines are open 8.00am to 4.30pm

Monday to Friday.

Gifting shares to charity

Shareholders who have a small holding of shares on the register

whereby their value makes them uneconomic to sell, may donate

these shares to charity under the Sharegift Scheme – administered

by the Orr Mackintosh Foundation – a registered charity. Information

can be found at www.sharegift.org Telephone: 020 7930 3737.

General information

General information about Dairy Crest can be found on our

corporate website, www.dairycrest.co.uk

Investors who have questions relating to the Group’s business

activities should contact:

Investor Relations, Dairy Crest Group plc, Claygate House,

Littleworth Road, Esher, Surrey KT10 9PN.

Telephone: 01372 472200

e-mail: [email protected]

Financial calendar

Dividends Final

Ex-dividend Thursday 2 July 2015

Record date Friday 3 July 2015

Payment date Thursday 6 August 2015

Group results (Anticipated)

Half Year (Interims) November 2015

Preliminary Announcement

of 2015/16 results May 2016

2015/16 Report and Accounts

circulation June 2016

Analysis of ordinary shareholders at 20 May 2015 Holders

Number% Shares %

Category

Individuals and other holders 17,412 87.66 29,106,857 21.13

Insurance companies, pension funds, banks,

nominees and limited companies 2,452 12.34 108,660,920 78.87

19,864 100.00 137,767,777 100.00

Size of holdings

Up to 5,000 shares 18,339 92.32 24,780,399 17.99

5,001 – 20,000 shares 1,297 6.53 9,801,177 7.11

20,001 – 100,000 shares 129 0.65 5,846,949 4.24

Over 100,000 shares 99 0.50 97,339,252 70.66

19,864 100.00 137,767,777 100.00

This report is printed on Chorus Lux Silk paper.

This paper has been independently certified as meeting

the standards of the Forest Stewardship Council® (FSC)

and was manufactured at a mill that is certified to the

ISO14001 and EMAS environmental standards.

The inks used are all vegetable based.

Printed at Pureprint.

Designed and produced by Tor Pettersen & Partners.

Photographic direction by Hudson Wright Associates.

Board photography by Ed Hill.

Da

iry C

rest G

rou

p p

lc A

nnual R

ep

ort 2

01

5


Claygate House

Littleworth Road

Esher

Surrey KT10 9PN

Company No: 3162897

Visit our website at

www.dairycrest.co.uk

http://www.dairycrest.co.uk/investors/

Dairy Crest Group plc Annual Report 2015

Documents

Dairy Crest Annual Report 2015